murabaha mbl
DESCRIPTION
Murabaha MBLTRANSCRIPT
Introduction to Murabaha
Sharia Compliant modes of Islamic Banking & Finance
Participatory Modes Trading ModesDebt based
Mode
Qard • Mudaraba• Musharakah• Diminishing Musharakah• Equity Participation in theform of shares in a corporate entity
• Ijara• Murabaha• Musawamah• Salam• Istisna• Tawarruq (in exceptionalcases with prior approval from SBP)
Other Modes
• Wakalah• Hawala• Kafala
Goods can only be sold on the price mentioned herein
Musawamah Murabaha Tawlliyah Wazia
Buyers Knows
In Murabaha
In Tawliya
In Wazia
Nothing About Cost
& Profit
Cost andZero Profit
Cost and Loss
Cost and Profit
In Musawamah
• 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.
Definition of Murabaha
• The distinguishing feature of Murabaha from ordinary sale is:
- The seller discloses the cost to the buyer.
- And a known profit is added.
Murabaha
• Payment of Murabaha price may be:
1) At spot2) In installments3) In lump sum after a certain time
• Hence, Murabaha does not necessarily imply the concept of deferred payment.
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.
Murabaha
Basic rules for Murabaha financing:
• Re- negotiation of price and roll over of Murabaha are not permitted.
• Discounting of Murabaha instruments is not permitted.
Murabaha
Step by step Murabaha Financing
1. Client and bank sign an agreement to enter into Murabaha (MMFA).
Agreement to Murabaha
Bank Client
Murabaha
Institute may require Hamish Jidyah (Security deposit)
Hamish Jiddiyah (Security Deposits): Purpose
Client refuses to buy
Bank resells it to other Person
New Price is above than
Cost of Purchase
New Price is same as cost of Purchase
New Price is lowerthan the Cost of
Purchase
Full Hamish Jiddiyah
is returned
Full Hamish Jiddiyah
is returned
Refund Hamish Jiddiyah after deducting
the actual loss or Claim further if
loses are not covered
When Customer refuses to
buy
Hamish Jiddiyah
Cost of Purchase of
GoodsMark Up
Resale Price
Setoff Hamish Jiddiyah
Refund Hamish Jiddiyah
Further Claim from Customer
Case-1 15,000 40,000 5,000 35,000 5,000 10,000 -
Case-2 15,000 40,000 5,000 25,000 15,000 - -
Case-3 15,000 40,000 5,000 50,000 - 15,000 -
Case-4 15,000 40,000 5,000 18,000 15,000 7,000
Before Murabaha if customer refuses to buy
2. Client appointed as agent to purchase goods on bank’s behalf
Agency
Agreement
Agreement to Murabaha
Bank Client
Murabaha
3. Bank gives money to agent/supplier for purchase of goods.
Disbursement to the agent or supplier
Agency
Agreement
Supplier
Agreement to Murabaha
Bank Client
Murabaha
4. The agent takes possession of goods on bank’s behalf.
Transfer of Risk
Delivery of goods Vendor
Bank Agent
Murabaha
5(a). Client makes an offer to purchase the goods from bank through a
declaration.
Offer to purchase
Bank
Client
Murabaha
5(b). Bank accepts the offer and sale is concluded.
Murabaha Agreement +
Transfer of Title
Bank Client
Murabaha
6. Client pays agreed price to bank according to an agreed schedule. Usually on a deferred payment basis (Bai Muajjal)
Payment of Price Bank
Client
Murabaha
Cases / Examples
MURABAHA• Actual buyer has a few funds/ No Funds• Financer buys for Actual Buyer:-
Cost Rs. 100,000 Paid by Financer
Buying Expenses 10,000 Paid by Financer
Total Cost 110,000 Borne by Financer
Profit rate on cost 20%
Price to be offered 110,000 + (20% of
110,000)=132,000
Recovery in installments from buyer
Example (1)
• Mr.A purchased a pair of shoes for Rs. 100.
• He wants to sell it on murabahah with 10% markup.
• The exact cost is known.
• The murabahah sale is valid.
Example (2)• Mr. A purchased a ready-made suit with a pair of
shoes in a single transaction, for a lump sum price of Rs. 500/-
• Mr.A can sell the suit including shoes on murabahah.
• But he cannot sell the shoes separately on Murabahah, because the individual cost of the shoes is unknown.
• If he wants to sell the shoes separately, he must sell it at a lump sum price without reference to the cost or to the mark-up.
Application of Murabaha
• Purchase of raw material; for meeting
working capital needs of trade and industry.
• Medium term requirements for purchase of
land, building and equipment.
• Trade finance products including imports,
exports and bill purchase.
Applications of Murabaha
FAQs:• Q. Is it necessary in Murabaha to disclose cost of
commodity to be sold by the seller (bank)?
• Ans. Yes
• Q. Is it a loan Agreement?
• Ans. No, it is a sale of commodity for cash or on deferred price.
• Q. How Murabaha transaction is made?• Ans. Bank will buy the goods from third party and
sell those goods to the customer for a pre-agreed price.
• Q. Can bank appoint customer as an agent to purchase goods as per his choice?
Ans. Yes. Customer may be appointed by bank as an agent for purchase of goods but this agreement of agency will be made separately from the Murabaha.
• Q. Who will be responsible for the risk during purchase of the commodity and its ultimate sale to the client?
• Ans. Financer will be responsible.
• Q. In case of late payment from buyer, Can bank take penalty from buyer?
• Ans. Yes
• Q. Can the bank use the amount of penalty for its own purpose?
• Ans. No, penalty shall be used for charitable purpose.
• Q. Can bank take security from buyer?• Ans. Yes
• Q. In Case of default of buyer, Can bank sale the security without the intervention of court?• Ans. Yes
Agency- FAQsWhat is the meaning of appointment of customer as an
agent?
When the actual buyer comes to bank and ask that he wants to buy goods but he does not have money in his pocket. Further the Bank is unable to reach to the destination of Seller.
The bank request to buyer to buy goods on Bank's behalf.
When buyer buys then bank sells the goods to buyer on installment.
Appointment of Customer as agent is preferable ?
• It should be avoided but when the situation makes it inevitable then appointment is not prohibited.
• When the Financer appoints the customer as agent?
• Ans. Generally customers are living far from financer, the financer appoints him as agent and say to buy goods on our behalf.
The Customer buys and pay to supplier on the behalf of Financer.
Now the Financer sell to customer by adding profit on installments.
Buy Back
• If a person has a fixed asset of Rs. 1000,000; he sell it to bank; and request to bank to sell the assets again to him on installments; and he will pay 1,200,000.
Ans. No. It is a buy back arrangement and it is haram.