Yes, we do share in some losses.
There are two types of Musharaka Contracts. The intention of the Partnership determines which one is more favorable to use.
Shirakatul AQD: This contract is used in traditional Business Partnership(s). Profits and Losses are shared based on the investment and agreed upon partnership terms.
Shiratkatul Milk: This contract is used to acquire hard assets. It’s used mostly to finance Real Estate, machinery, equipment, etc.
UIF’s partnership program is based on the Shirakatul Milk model. This is a partnership based on an Asset Ownership i.e. Home purchase. Even though both parties (UIF & Customer) own the home together, only one party (Customer) is deriving the benefit from its use. For this reason the Customer pays a rent to UIF for utilizing the portion of the property not owned by them. Along with the rent, they also pay additional funds (Buy out $$) to buy out UIF’s share in the property. UIF’s profit is the rent received over the term of the contract. The Customer profits from home value price appreciation.
Loss Sharing: Two Scenarios:
In case of Foreclosure: If the customer stops making monthly payments and violates the terms of the contract, UIF has the right to foreclose on the property and sell it in the open market, which could result in a loss. However, before initiating any foreclosure proceedings, UIF will make every effort to work out a payment plan that is favorable to all parties involved.
In case of Natural Disaster: Where the property is a total loss and cannot be rebuilt losses will be shared based on our ownership percentage at the time of the event.