chap 08 - murabaha

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 Islamic Financial

 Products and Processes

  Ameenullah Sheikh 

ameenullah.shaikh@iqra.edu.pk 

7/23/2019 Chap 08 - Murabaha

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Trade Financing/Comodit

Financing

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• Islam prohibits charging fixed interest on money,

but permits charging fixed profit on sale of goods.

This clears a common misconception that charging

fixed profit is haram.

Murabaha

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Presen

Murabaha

• Murabaha is a particular kind of sale wherethe transaction is done on a “cost plus profit”basis i.e. the seller discloses the cost to thebuyer and adds a certain profit to it to arrie

at the final selling price.

• The distinguishing feature of Murabaha fromordinary sale is!

" The seller discloses the cost to the buyer." #nd a known profit is added.

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Conditions of Subject Matter :

$% &ub'ect Matter of murabaha must be existing at the time of sale.

(% &ub'ect Matter of murabaha must

be in the ownership of the seller.

)% &ub'ect Matter of murabaha must be inthe physical or constructie possession of the seller. *Transferof +isk +eward and permission of use- Tasrruf are basicingredients of onstructie /ossession

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Conditions of Subject Matter :4) &ub'ect Matter of sale must be of a proper

 alue

0% &ub'ect Matter of murabaha should notbe a thing which is not used except fora 1aram /urpose.

2% &ub'ect Matter of Murabaha must be&pecified Identified to the buyer.

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PRICE OF MURABAHA:PRICE OF MURABAHA: 

$% The price must be fixed in Murabaha

*lump sum-by percentage%

(% The price in Murabaha may be spotor deferred.

)% If the price is deferred in Murabaha,the installments and due date mustbe determined.

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4) 3hen once the price is fixed it can not be

changed.

0% Increase in the price not allowed incase of default.

2% 4luctuation in Murabaha price is not permissible.

PRICE OF MURABAHA:PRICE OF MURABAHA:

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Expenses ofExpenses ofMurabaha:Murabaha: The direct

expenses will beadded in the costof goods. (Costacquiring the

commodity likefreight andcostume duty)

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• It is a contract wherein the institution, upon re5uest by thecustomer, purchases an asset from the third party*a supplier%and resells the same to the customer either againstimmediate payment or on a deferred payment basis.

• It is a bunch of contracts completed in steps and ultimatelysuffices the financial needs of the client.

• The se5uence of their execution is extremely important tomake the transaction &hariah compliant.

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$.  lient and bank sign an agreement to enterinto Murabaha *MM4#%.

greement to!urabaha

  Bank Client

Steps in Murabaha financing

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Presen

(.  lient is appointed as agent to purchasegoods on bank6s behalf 

greement to!urabaha

  Bank Client

Steps in Murabaha financing

gency

greement

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). 7ank gies money to agent-supplier forpurchase of goods.

"isbursement to the agent orsupplier

gency

greement

Supplier

greement to!urabaha

  Bank  Client

Steps in Murabaha financing

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8. The agent takes possession of goods on bank6sbehalf.

 Transfer of#isk

"eli$eryof goodsendor

  Bank   !gent

Steps in Murabaha financing

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0*a%. lient makes an offer to purchase thegoods from bank through a declaration.

%&er topurchase

Bank  

Clien

t

Steps in Murabaha financing

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0*b%. 7ank accepts the offer and sale isconcluded.

!urabahagreement '

 Transfer of Title

  Bank   

Client

Steps in Murabaha financing

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2. lient pays agreed price to bank according toan agreed schedule. 9sually on a deferred

payment basis *7ai Mua''al%

ayment of rice

  Bank   

Client

Steps in Murabaha financing

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Any Questions??THANK YOU