MURABAHA
Definition
• Sale of goods at cost plus an agreed profit
mark-up.
• Seller should inform the buyer of the cost of
the goods and the required amount of profit.
Murabaha Terms
• Revealing cost to Buyer.
• Goods initially acquired by valid
contract.
• Seller should disclose any defects
or faults of goods.
• First contract should be free of
usury.
Murabaha Terms
• Seller should disclose terms of first
contract e.g first purchase was on
credit.
• If any of above conditions are not
met buyer has option to:
– Proceed,
– Cancel contract or
– recourse to seller for discrepancy.
Purchase order Murabaha
• Sale in which:
– One party asks the
other to purchase an
asset, and
– Then sell it to him on
Murabaha basis.
Cont.
• Customer promises the Bank
to buy asset
• Bank buys and owns asset.
• All of Murabaha terms should
be met.
• Customer is/is not obliged to
make his promise.
Motive for purchase order
Murabaha
• Accessing expertise.
• Accessing finance.This
is, currently,the
dominant motive.
• Minimizing risk
• Legal considerations.
Is Murabaha a Credit Sale?
Credit Sale:
installments or one payment
Cash Sale
Obligation in Purchase Order
Murabaha
• Early Sharia Scholars & existing Figh Academy
ruled that customer is not obliged to meet his
promise.
• However, a few contemporary Scholars ruled that
customer is obliged to meet his promise.
• Most of Islamic banks follow the second Fatwa.
Why not to oblige Customer?
• To avoid the possibility that “seller sells goods he
doesn’t own”.
• To avoid the case of an “advance with a
premium (Riba)”.
• To avoid the case of “two sale contracts
concealed in one”.
Purchase order Murabaha with
Obligation
• Request by customer to bank.
• If bank accepts request, it is bound to purchase asset
from vendor via valid sale contract.
• Bank offers asset to customer who is bound to
accept it.and should establish sale contract.
Cont.
• Bank can ask customer to pay “Hamish-gedyah” when request is made.
• If Murabaha contract is concluded “Hamish-Gedyah” becomes part of price.
• If customer reneges on his promise, bank recourse to “Hamesh-gedyah” for amount of damage.
Cont.
• If not enough, bank may recourse to
customer for further compensation.
• Some banks use Urboun instead of Hamish-
Gedyah”
Hamish-Gedyah VS. Arboun
• Both are part of price if Murabaha contract is
concluded.
• Hamish-Gedyah is used to pay for actual
damage if Murabaha contract is not concluded.
• Urboun is taken in full, whether it is more or
less than damage, if Murabaha contract is not
concluded.
Purchase order Murabaha
without Obligation
• Request by customer is considered
willingness to buy not an offer.
• If bank accepts, it acquires the asset.via
valid contract.
• Banks offers asset to customer.
• Customer has option to accept or decline
offer.
Cont.
• If he accepts contract is concluded.
• If he declines offer asset remains in possession
of bank.
• If an advance payment is required it should be
made after acceptance of offer & is part of
price..
• No Hamis-gedyah or Urboun.
Guarantee
• It is permissible to ask for guarantee or
collateral in Murabaha.
• It may take any of these forms:
– Purchased asset.
– Any other property.
– Third party guarantee.
– Personal guarantee.
Pricing
• Bank adds the required profit to cost of asset.
• Profit becomes part of selling price.
• Murabaha term can affect amount of profit ie banks
take more profits for longer maturity.
• For flexibility banks use Hamish -Almurabaha,which is
based on cost of money, to calculate profit.
Murabaha Debts
• Murabaha transactions normally create debts.
• Collection of debts should not be linked to disposition of goods.
• Title to the goods passes to customer on signing of contract.
Default
• Bank can not increase price if
customer defaults.
• It can not charge a penalty either
• That would be Riba.
Debt collection Procedures
• Genuine insolvent debtor.
• Procrastinating solvent debtor.
Genuine insolvent debtor
• Defer collection until
customer is solvent.
• This is required by a
verse of Quran.
Procrastinating Solvent debtor
• Criminal procedures if debtor issued
post-dated checks.
• Civil procedures to regain debt and
claim compensation for actual
financial loss ie selling collateral.
• Civil procedures to remedy damage
for lost opportunity.