A type of musharaka (partnership) that is established on the agreement that one partner will undertake to buy out the shares of the other partner in a gradual manner over a specific period of time. In a corporate setting, musharaka mutanaqisa involves the Islamic bank agreeing to transfer gradually to the other partner its (the Islamic bank’s) share in the musharaka venture, so that the Islamic bank’s share decreases and the other partner’s share increases over time, until the latter become the sole proprietor of the venture. This form of partnership, especially a time equity buyout, is usually used in Islamic home finance.

Musharaka mutanaqisa (in Arabic script: مشاركة متناقصة) translates as diminishing partnership (or diminishing musharaka).