Analysis on net present value of joint ventures investment using diminishing musyarakah model

Nowdays, joint ventures have grown tremendously between companies all over the world. Joint venture is a partnership between two or more parties that contribute equity of investment to manage a project. The sharing of profit and loss in joint ventures describes the application of diminishing musyarakah principle in investment according to Islamic scholars. The application of diminishing musyarakah can help Muslims to avoid transactions that are based on riba since it is based on syariah principle. Diminishing musyarakah can be defined as an arrangement of agreement whereby the capital provider allows entrepreneurs to buy its equity by installments where the profit and loss will be shared on an agreed ratio. The objective of this paper is to determine the net present value for diminishing musyarakah model in calculating the investment performance by joint venture. It is found that the diminishing musyarakah model can be adapted in determining the investment performance for joint venture using net present value. Thus, this paper may encourage the joint venture company to use diminishing musyarakah concept in managing their investment performance.