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Introduction to Murabaha Version 2.0

Introduction to Murabaha Version 2.0. Release Date: Jamad ul Thani 31, 1430 H June 25, 2009 Prepared By: Product Development and Shariah Compliance Department. Definition of Murabaha. Murabaha is a particular kind of sale and not a financing in its origin.

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Introduction to Murabaha Version 2.0

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  1. Introduction to Murabaha Version 2.0 Release Date: Jamad ul Thani 31, 1430 H June 25, 2009 Prepared By: Product Development and Shariah Compliance Department

  2. Definition of 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.

  3. Murabaha • The distinguishing feature of Murabaha from ordinary sale is: • The seller discloses the cost to the buyer. • - And a known profit is added.

  4. 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.

  5. Step by step Murabaha Financing

  6. Murabaha Bank Client Agreement to Murabaha 1.Client and bank sign an agreement to enter into Murabaha (MMFA).

  7. Murabaha Bank Client Agency Agreement Agreement to Murabaha 2.Client appointed as agent to purchase goods on bank’s behalf

  8. Murabaha Supplier Bank Client Agency Agreement Disbursement to the agent or supplier Agreement to Murabaha 3. Bank gives money to agent/supplier for purchase of goods.

  9. Murabaha Vendor Delivery of goods Transfer of Risk Bank Agent 4. The agent takes possession of goods on bank’s behalf.

  10. Murabaha Bank Client Offer to purchase 5(a). Client makes an offer to purchase the goods from bank through a declaration.

  11. Murabaha Murabaha Agreement + Transfer of Title Bank Client 5(b). Bank accepts the offer and sale is concluded.

  12. Murabaha Bank Client Payment of Price 6. Client pays agreed price to bank according to an agreed schedule. Usually on a deferred payment basis (Bai Muajjal)

  13. Application of Murabaha

  14. Applications of Murabaha • Purchase of raw material; for meeting working capital needs of trade and industry. • Medium to long term requirements for purchase of land, building and equipment. • Trade finance products including imports, exports and bill purchase.

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