Murabaha

Dr. Irum Saba

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BASIC RULES OF SALE

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 Rules of Sale

• Since Murabaha is a sale transaction, rules of

Shariah regarding sale should be understood.

• Sale is defined in Shariah as

“Exchange of a thing of value, by another

thing of value, with mutual consent”

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 Rules of Sale

Rule 1
The subject of sale must exist at the time of sale

For Example, “A” sells the unborn calf of his cow

to “B”,the sale is invalid.

Rule 2
The subject of sale must be in the ownership of
seller at the time of sale. Hence, what is not
owned by the seller cannot be sold.

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 Rules of Sale

For Example, “A” sells to “B” a car which is

presently owned by “C”, but which “A” intends to
purchase from “C”. Since the car is not owned by
“A” at the time of sale, the sale is void.

Rule 3
The subject of sale must be in the physical or
constructive ownership of seller at the time of
sale.

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 Rules of Sale

“Constructive Possession” means where the

buyer has not taken physical delivery of goods,
but the goods are under his control. And all
rights and liabilities of the goods have passed to
him,i.e. the goods are at his risk.

For Example, “A” has purchased a car from “B”,

“B” has not physically handed over the car to “A”
but has placed it at a garage which is in control
of “A”. “A” can access the car whenever he
wants to do so. The risk of the car has practically
passed to “A”, the car is in the “Constructive
Possession” of “A”,now “A” can sell the car to
third party.
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 Rules of Sale

Rule 4
The sale must be instant and absolute. Thus a
sale attributed to a future date or a sale
contingent on a future event is void.

For Example, “A” says to “B” on the 1st of

January:” I sell my car to you on the 1st of
February”. The sale is void, because it is
contingent on a future event.

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 Rules of Sale

Rule 5
The subject of sale should be an object of value.
A thing having no value according to the usage of
trade cannot be sold.

Rule 6

The subject of sale should not be a thing used for

a Haram purpose, e.g. pork, wine etc. The
subject should be Maal-e-mutaqawwam

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 Rules of Sale

Rule 7
The subject of sale should be specifically known
and identified to the buyer. The subject of sale
must be identified by pointing out or by detailed
specification which can distinguish it from other
things not sold.
For Example, “A” points to a building and says
to “B”: ‘I sell one of the apartments in this
building to you’. The sale is void unless the
apartment is specifically identified to the buyer.

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 Rules of Sale

Rule 8

The delivery of the sold commodity to the buyer

should be certain and should not depend on a
contingency or chance.

For Example, “A” sells his stolen car to a person

in hope that he will manage to get it back, the
sale is void.

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 Rules of Sale

Rule 9

The certainty of price is a necessary condition for

the validity of sale.

For Example, “A says to “B”: ‘If you pay in one

month, the price is Rs50, but if you pay in 2
months the price is Rs55’. The price is uncertain
and the sale is void.

“A” can give the two options to “B”, but then “B”
must select one option to validate the sale.

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 Rules of Sale

Rule 10

The sale must be unconditional. A conditional sale

is invalid, unless the condition is recognised as a
usual practice of trade

For Example, “A” buys a refrigerator from “B”

with a condition that “B” undertakes its free
service for 2 years. The condition, being
recognized as a part of the transaction, is valid
and the sale is lawful.

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MURABAHA

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 Murabaha

• Murabaha is a particular kind of sale and not

a financing in its origin.

• Where the transaction is done on a “cost

plus profit” basis i.e. the seller discloses the
cost to the buyer and adds a certain profit
to it to arrive at the final selling price.

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 Murabaha

• The distinguishing feature of Murabaha from

ordinary sale is:

- The seller discloses the cost to the buyer.

- And a known profit is added.

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 Murabaha

• Payment of Murabaha price may be:

1) At spot
2) In installments
3) In lump sum after a certain time

• Hence, Murabaha does not necessarily imply

the concept of deferred payment.

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 Murabaha

• The Murabaha transaction was prevalent in

the days of Prophet (S.A.W).

• All schools of Islamic Fiqh have discussed

Murabaha in the prominent books of
Islamic Fiqh.

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 Murabaha

Clearing doubts
Murabaha is perceived to be a borderline transaction

Correct position
• The transaction is permitted
• However, the process needs to be properly
followed.

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 Murabaha

Clearing doubts
Increase in price based on deferred payment resembles interest based transaction.

Correct position
• Money is only a medium of exchange whereas
commodities have intrinsic utility, owner is at a liberty
to sell at a price higher than market rate

• When a seller can sell his commodity at a higher price in

cash transaction, he can also charge a higher price in
credit sales.
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 Murabaha

Basic rules for Murabaha financing:

• Asset to be sold must exist.

• Sale price should be determined.
• Sale must be unconditional.
• Assets to be sold:
a) Should not be used for un-Islamic purpose.
b) Should be in ownership of the seller at the time
of sale; physical or constructive.

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 Murabaha

Basic rules for Murabaha financing:

• Re-negotiation of price and roll over of

Murabaha are not permitted.

• Discounting of Murabaha instrument is not

permitted.

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Step by step Murabaha financing

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 Murabaha

1. Client and bank sign an agreement to enter into

Murabaha (MMFA).

Bank Client
Agreement to
Murabaha

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 Murabaha

2. Client appointed as agent to purchase goods on

bank’s behalf

Bank Client
Agreement to
Murabaha
Agency
Agreement

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 Murabaha

3. Bank gives money to agent/supplier for purchase of goods.

Bank Agreement to Client

Murabaha
Agency
Agreement
Disbursement to the agent or supplier

Supplier 25
 Murabaha

4. The agent takes possession of goods on bank’s behalf.

Delivery
Transfer of Risk Vendor of goods

Bank Agent

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 Murabaha

5(a). Client makes an offer to purchase the

goods from bank through a declaration.

Bank Client

Offer to
purchase

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 Murabaha

5(b). Bank accepts the offer and sale is concluded.

Murabaha Agreement
+
Transfer of Title

Bank Client

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 Murabaha

6. 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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