MURABAHA

Presented By Jawaid Iqbal

Prepared by: Br. Ali Abbas Abidi15 Rajub 1429, Saturday July 19, 2008

Al-Sadiq (A.S) Institute of Islamic Banking, Finance & Takaful

Murabaha - Definition

Murabaha is selling a commodity as per the purchasing price with a defined and agreed profit mark-up.

This mark-up may be a percentage of the selling price or a lump sum. This transaction may be concluded either without a prior promise to buy, in which case is called an ordinary Murabaha, or with

a prior promise to buy submitted by a person interested in acquiring goods through the institution, in which case it is called a “banking Murabaha” i.e. Murabaha to the purchase orderer.

Shari’a Standard No. (8) – Murabaha to the purchase Orderer: Accounting and Auditing Organization for Islamic Financial Institutions)

Murabaha Transactions

at the

Asset Side

of Islamic Banks

Asset SideIslamic

BankingLiability Side

Deposits from

Customers

Deposit Bases :Musharika

Mudaraba

Wakala

Ijara

Murabaha

Dimishing Musharika

Musharika

MudarbaMURABAHA

Is always at

Asset side

Murabaha

Mode of Financing

Banking Systems

Similarity

Conventional Banking

(Lending)Islamic Banking

(Murabaha)

Client

Knows

Loan

Client

Knows

Goods

CostInterest % Mark-up %

Allah has permitted Trade and Prohibited RIBA

Islamic Bank &

Conventional Bank

For the Purpose

Of Murabaha & Lending

Lending

Is Changed

with Goods

Interest is

Changed

with

mark up

Parties for Completing Murabaha Contract

As Sale As Mode of Finance

Seller Buyer Client Bank Supplier

Sale on the basis

Of Both

Spot and Deferred Deferred Sales

Morabaha Sale

Spot Deferred

Direct between

Buyer and Seller

Through Bank

Rules covered in

Standard Not covered in

Standard

Not emphasize in

Standard

Bai Mu’ajjal

Parties to

Murabaha Transaction

Bank Client Supplier

Parties for Murabaha Trasaction

Client Request to Bank

Bank Purchases Goods from Supplier

Bank Sells Goods to Client

No Agency Relationship between Client and Bank

Bank Supplier

Parties before Murabaha Transaction

(1) Payment

(2) Sales Goods

Bank Client Supplier

Parties for Murabaha Transaction

(1) Sales Goods

(2) Pays in Defer

Payment basis

No

Relation

Agency Relationship

Between

Client and Bank

Bank Client Supplier

(1)Make Client

his agent

(2) Makes bank as his

Principal

(3)Purchases

Goods

(5) Through Offer

and acceptance

Make Murabaha

(7) Pays on

defer basis

(6)Consume Goods

When Bank makes his client as agent

(4)Pay cost

Of Goods

Different Contracts

to Conclude

Murabaha

Contract

FirstActual Purchase

Bank and Supplier

SecondMurabaha Contract

Bank and Client

When Client is not an Agent of Bank

Contract

SecondBank and

Supplier

ThirdMurabaha Contract

Bank and Client

FirstBank And Client

Contract of

AgencyAlthough

Client Buys

But

Contract between Bank and Supplier

When Client is an Agent of bank

Contract of Murabaha mean

Offer

From ClientAcceptance from

Bank

OR

Offer

From BankAcceptance from

Client

1….First Promisor and Promisee

2….Agent and Principal (In special Case)

3….Buyer and Seller

4….Last Debtor and Creditor

Relationship

Between

Client and Bank

Relationship between Bank and Client

Before

MurabahaAfter Murabaha

Bank

PromiseeClient

Promisor

Bank

Creditor

Client

Debtor

At the Time of

Murabaha

Bank

Seller

Client

Buyer

Before

MurabahaClient

Agent

Bank

Principal

Before

Murabaha

Bank

PromiseeClient

Promisor

When no Agency When Agency contract

Between Client and bank

Bank

PromiseeClient

PromisorBank

Principal

Client

Agent

At the Time of Murabaha:

When Goods are with the Bank

Bank

SellerClient

Buyer

Owns and Posses

GoodsSales

At the Time of Murabaha: When Goods are with the Client

Bank-Seller Client-Buyer

Owns Goods

Client Possess Goods

On Behalf of Bank

Bank has

Constructive

Possession over

Goods

Bank Sales

Constructive Possession of bank

After Murabaha

Bank

Creditor

(Receiver of Amount)

Client

Debtor

(Payer of Amount)

Pays

Receives

Appointment

of

Client As Agent

When Bank appoints Client as Agent

Goods are of

Special in Nature

Bank unable to approach

To Supplier

Remember it is least preferred to appoint Client on Behalf

Of Bank to purchase the Goods

Subject Matter

and

Consideration

Subject Matter Consideration

Contract of Murabaha

Existing

Goods Cost Markup+

Fixed Asset and

Consumables are allowed

Commodity under Morabaha

Include Exclude

Gold

Silver

Same Currency

Expenses of Client

All goods except

It is a view those who accept Currency alternate to Gold

Cost

Hidden

Murabaha Tawlliyah Wazia

Disclose to Customer

Musamawa

Profit on Sale

Hidden

Murabaha

Disclose to Customer

Musamawa

No Profit in Wazia

And Tawlia

Goods can only be sold on the price mentioned herein

Musamawah Murabaha Tawlliyah Wazia

Price Break Up

Murabaha Tawlliyah WaziaMusamawa

Cost +

ProfitCost +

Zero Profit

Cost -

Loss

Cost +

Profit

Buyers Knows

In

Murabaha

In

Tawlliyah

In

Wazia

In

Musamawa

Nothing

about

Cost and

Zero Profit

Cost and

LossCost and

Profit

Cost and Profit

Contract of Sale On

SpotDeferred

Bai Mu’ajjal

If Seller discloses

Cost and Profit to Buyer

It is a

Murabaha

OR

Price

Musamawah Murabaha Tawlliayah Wazia

Deferred SpotBai

Mu’ajjal

Deferment of Price

Musamawah Murabaha Tawlliyah Wazia

Standard no.8

Covers

Murabaha

In Detail

Not Covered in detailed in Standard No. 8

End of Part 1