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Islamic Financial Products and Processes: Ameenullah Sheikh

This document provides an overview of Murabaha, an Islamic financial product that permits fixed profit on the sale of goods. It discusses the key conditions and steps in a Murabaha transaction. Specifically, it explains that Murabaha involves the bank purchasing an asset from a supplier on behalf of a client as their agent. The bank then sells the asset to the client at an agreed upon markup. The transaction follows a series of steps including an agency agreement, purchase of the goods, transfer of risk and title to the bank, and finally sale to the client on a deferred payment basis. The document outlines the conditions for subjects of Murabaha and pricing, providing details on how the product structures the sale of goods in accordance with Islamic

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27 views18 pages

Islamic Financial Products and Processes: Ameenullah Sheikh

This document provides an overview of Murabaha, an Islamic financial product that permits fixed profit on the sale of goods. It discusses the key conditions and steps in a Murabaha transaction. Specifically, it explains that Murabaha involves the bank purchasing an asset from a supplier on behalf of a client as their agent. The bank then sells the asset to the client at an agreed upon markup. The transaction follows a series of steps including an agency agreement, purchase of the goods, transfer of risk and title to the bank, and finally sale to the client on a deferred payment basis. The document outlines the conditions for subjects of Murabaha and pricing, providing details on how the product structures the sale of goods in accordance with Islamic

Uploaded by

hamza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Islamic Financial

Products and Processes


Ameenullah Sheikh
[email protected]

Trade Financing/Comodity
Financing

Murabaha

Islam prohibits charging fixed interest on money,


but permits charging fixed profit on sale of goods.
This clears a common misconception that charging
fixed profit is haram.

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

Conditions of Subject Matter:


1)

Subject Matter of murabaha must


be existing at the time of sale.

2)

Subject Matter of murabaha must


be in the ownership of the seller.

3)

Subject Matter of murabaha must be in


the physical or constructive possession of the seller. (Transfer
of Risk & Reward and permission of use/ Tasrruf are basic
ingredients of Constructive Possession

Conditions of Subject Matter

4) Subject Matter of sale must be of a proper


value
5) Subject Matter of murabaha should not

be a thing which is not used except for


a Haram Purpose.

6) Subject Matter of Murabaha must be

Specified & Identified to the buyer.

PRICE OF MURABAHA:
1)

The price must be fixed in Murabaha


(lump sum/by percentage)

2)

The price in Murabaha may be spot


or deferred.

3)

If the price is deferred in Murabaha,


the installments and due date must
be determined.

PRICE OF MURABAHA:

4)When once the price is fixed it can not be


changed.

5) Increase in the price not allowed incase of default.


6) Fluctuation in Murabaha price is not permissible.

Expenses of
Murabaha:
The direct
expenses will be
added in the cost
of goods. (Cost
acquiring the
commodity like
freight and
costume duty)

It is a contract wherein the institution, upon request by the


customer, purchases an asset from the third party(a supplier)
and resells the same to the customer either against
immediate payment or on a deferred payment basis.
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.

Steps in Murabaha financing

1. Client and bank sign an agreement to enter


into Murabaha (MMFA).

Bank

Agreement to
Murabaha

Client

Steps
Presenin Murabaha financing

2. Client is appointed as agent to purchase


goods on banks behalf

Bank

Agreement to
Murabaha
Agency
Agreement

Client

Steps in Murabaha financing

3. Bank gives money to agent/supplier for


purchase of goods.
Bank

Agreement to
Murabaha

Client

Agency
Agreement
Disbursement to the agent or
supplier
Supplie
r

Steps in Murabaha financing

4. The agent takes possession of goods on banks


behalf.

Transfer of
Risk

Vendor

Delivery
of goods

Bank
Agent

Steps in Murabaha financing

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


goods from bank through a declaration.

Bank

Clien
t
Offer to
purchase

Steps in Murabaha financing

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


concluded.
Murabaha
Agreement
+
Transfer of Title
Bank

Client

Steps in Murabaha financing

6. Client pays agreed price to bank according to


an agreed schedule. Usually on a deferred
payment basis (Bai
Muajjal)

Bank
Payment of Price

Client

Any Questions??
THANK YOU

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