Center of Islamic Finance
COMSATS Institute of Information Technology
Lahore Campus
Sale Contract /Murabaha
Adopted from open source lecture of
Mufti Najeeb Khan.
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MURABAHA
Murabaha is a particular kind of sale where the
seller discloses its cost and profit charged
thereon.
The price in this sale can be both on spot and
deferred.
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Difference between Murabaha &
Musawima
Murabaha is a particular kind of sale where the
seller discloses its cost and profit charged
thereon.
Musawima is a sale on agreed price without
referring to the first price on which the seller
has purchased.
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BANKING MURABAHA
It is a contract wherein the institution, upon
request by the customer, purchases a asset
from the third party usually a supplier/vendor
and resells the same to the customer either
against immediate payment or on a deferred
payment basis.
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BANKING MURABAHA
It is called Murabaha to the purchase orderer .
It is a bunch of contracts completed in steps and
ultimately suffices the financial needs of the
client.
The sequence of their execution is extremely
important to make the transaction Shariah
compliant.
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SCOPE OF MURABAHA
As it is a kind of sale, there must be a seller and
buyer and some thing that is bought and sold.
The institution is the seller and the client is
buyer.
It cannot be used as a substitute for running
finance facility, which provides cash for fulfilling
various needs of the client.
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SCOPE OF MURABAHA
Itis a fixed price sale and normally is done for
short term.
The transaction can be used in order to meet
the working capital requirements however it
cannot be used to meet liquidity requirements.
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Step by Step Murabaha
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1- Promise stage
Stage One (a) for Murabaha financing.
• Client approach the bank for facility through Murabaha.
Bank Client
Facility
approved
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1- Promise stage
Stage One (b) for Murabaha financing.
• Client and bank sign an agreement to enter into
Murabaha.
Bank Client
Murabaha
Facility
Agreement
MOU
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1- Promise stage
Stage One (c) for Murabaha financing.
• Client submit the purchase requisition to the bank.
Bank Client
purchase
requisition
/Promise to
the bank.
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2- Agency stage
Stage Two (a) for Murabaha financing.
• Client appointed as agent to purchase goods on
bank’s behalf
Bank Client
Agreement to
Murabaha
Agency
Agreement
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2- Agency stage
Stage Two (b) for Murabaha financing.
• Bank gives money to supplier through client’s account
for purchase of goods.
Bank
Islamic
Agreement to Client
Bank Murabaha
Agency
Agreement
Disbursement to the
Supplier 14
3. Acquiring Possession
Stage three for Murabaha financing.
• Client purchases goods on bank’s behalf and takes
their possession.
Client purchases
goods and takes
Transfer of Risk Vendor possession
Banck Client
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4. Execution of Murabaha
Stage four (a) for Murabaha financing.
• Client makes an offer to purchase the goods from
bank.
Bank
Client
Offer to
purchase
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4. Execution of Murabaha
Stage four (b) for Murabaha financing.
• Bank accepts the offer and sale is concluded.
Murabaha
Agreement
+
Transfer of Title
Bank Client
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4. Execution of Murabaha
Stage four (b) for Murabaha financing.
• Client pays agreed price to bank according to an
agreed schedule. Usually on a deferred payment basis
(Bai Muajjal).
Bank Client
Payment of Price
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Murabaha
GENERAL MECHANICS
VENO
VENDOR ISLAMI BANK CUSTOMER
Agreement
C
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• The customer approaches the Bank with the
request for financing.
• The Bank purchases and receives title of
ownership from the vendor.
• The Bank makes payment to the vendor.
• The Bank transfers the title over to the
customer upon payment.
• The customer makes payment up-front or on a
deferred basis.
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ISSUES IN MURABAHA
Rescheduling is allowed but repricing is not
allowed.
Rollover is also not allowed.
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Risk Management
IN
MURABAHA
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Credit
Risk
Dimensions
Liquidity
Credit
Prising risk
Banking
Risks
Market
IslamicBanks
Islamic Banksalso
alsoface
face
Additionalasset
--Additional assetrisk
risk Foreign Exchange
Greaterfiduciary
--Greater fiduciaryrisks
risks
Greaterlegal
--Greater legalrisk
risk Solvency
Operational
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THANK YOU
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