Ethica Institute of Islamic Finance™

Is it permissible to contract a Musharakah for construction of property, where the client share is the value of land he owns and the bank’s share is the value of the building to be constructed?

Furthermore, is it permissible to contract an agreement that the bank will sell its shares to the client upon completion of the contract and that the client will be appointed contractor for the project?

It is permissible to enter into a Musharakah contract for construction on the property that is in the ownership of the client. The client’s share in the Musharakah will be equal to the value of the land while the bank’s share will be equal to the value of the building to be constructed.

It is further permissible that both parties agree that the bank will sell its share of the Musharakah to the client upon completion of the project, making the client the sole owner of the land and building. Both parties may also agree to appoint either one of them—in this case, the client—as contractor for the purpose of construction, provided that such a contract will be completely independent and separate from the Musharakah contract.

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