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Sale Contract /Murabaha .
Muhammad Najeeb Khan
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CONTRACT IN ISLAM
CONTRACT
SUBJECT
MATTER
•Specified
•Quantified
CONTRACTORS
WORDING OF
CONTRACT
•Non-restricted
•Sane
•Mature
•Present
•Unconditional
•Non-contingent
Law of Contract
Islamic Contract: It is connection
between the offer and the
acceptance in a manner that
results the proper affects.
Offer
Acceptance
Subject matter
ISLAMIC SALE
 DEFINITION OF SALE(BAI)
– exchange of a thing of value with
another thing of value with mutual
consent.
– the sale of a commodity in exchange
of cash.
ISLAMIC SALE
(1)-VALID SALE ( Bai Sahih)
– a sale is valid if all elements together with
their conditions are present
– elements of valid sale are
• Contract ( Aqd )
• Subject matter ( Mabe’e)
• Price ( Thaman )
• Possession or delivery ( Qabza )
CONTRACT ( Aqd )
•
•
•
Offer & Acceptance ( Ijab-o-Qobool)
– Oral ( Qauli )
– Implied ( hukmi )
Buyer and seller ( Muta’aquadeen ) must be
– Sane
– Mature
Conditions of contract ( Sharaet-e-Aqd )
– sale must be non-contingent
– sale must be immediate
SOLD GOOD OR SUBJECT MATTER
( Mube’e )
•
•
•
•
•
•
•
Existing
Valuable
Usable
Capable of ownership/title
Capable of delivery/possession
Specific & Quantified
Seller must have title & risk
MURABAHA
Murabaha is a particular kind of
sale where the seller discloses its
cost and profit charged thereon.
 The price in this sale can be
both on spot and deferred.
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Difference between
Murabaha & Musawima
• Murabaha is a particular kind of sale
where the seller discloses its cost and
profit charged thereon .
• Musawima is a sale on agreed price
without referring to the first price on
which the seller has purchased
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BANKING MURABAHA
It is a contract wherein the institution,
upon request by the customer, purchases
a asset from the third party usually a
supplier/vendor and resells the same to
the customer either against immediate
payment or on a deferred payment basis.
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BANKING MURABAHA
 It is called Murabaha to the purchase orderer
.
 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.
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SCOPE OF MURABAHA
As it is a kind of sale, there must
be a seller and buyer and some thing
that is bought and sold . The
institution is the seller and the
client is buyer.
It cannot be used as a substitute
for running finance facility , which
provides cash for fulfilling various
needs of the client.
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SCOPE OF MURABAHA
It is a fixed price sale and normally
is done for short term.
The transaction can be used in
order to meet the working capital
requirements however it cannot be
used to meet liquidity requirements.
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Step by Step Murabaha
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1- Promise stage
Stage One (a) for
Murabaha financing
1
.
Client approach the bank for
facility through Murabaha.
Bank
Facility
approved
Client
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1- Promise stage
Stage One (b) for
Murabaha financing
1
.
Client
and
agreement
to
bank
sign
enter
an
into
Murabaha.
Bank
Murabaha
Facility
Agreement
Client
MOU
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1- Promise stage
Stage One (c) for
Murabaha financing
.
Client
submit
the
purchase
requisition to the bank.
Bank
purchase
Client
requisition
/Promise to the
bank.
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2-
Agency stage
2.
Client appointed as agent to
purchase goods on bank’s behalf
Bank
Agreement to
Murabaha
Agency
Client
Agreement
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2- Agency stage
Stage Two for Murabaha
financing
.
Bank gives money to supplier
through
client’s
account
for
purchase of goods.
Islamic
Bank
Bank
Agreement to
Murabaha
Client
Agency
Agreement
Disbursement to the
Supplier
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3. Acquiring Possession
Stage three for Murabaha
financing
. Client purchases goods on bank’s
behalf and takes their possession.
Transfer of Risk
Bank
Vendor
Client purchases
goods and takes
possession
Client
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4. Execution of Murabaha
Stage four (a) for Murabaha
financing
.
Client
makes
an
offer
to
purchase the goods from bank.
Bank
Client
Offer to
purchase
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4. Execution of Murabaha
Stage four (b) for Murabaha
financing
. Bank accepts the offer and
sale is concluded.
Bank
Murabaha
Agreement
+
Transfer of Title
Client
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4. Execution of Murabaha
Stage four (b) for Murabaha financing
. Client pays
agreed price to bank
according to an agreed
schedule.
Usually on a deferred payment basis
(Bai Muajjal)
Bank
Payment of Price
Client
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Murabaha
GENERAL MECHANICS
VENDOR
•
Agreement
CUSTOMER
The customer approaches the Bank with
the request for financing
•
•
ISLAMIC BANK
The Bank purchases and receives title of
ownership from the vendor
The Bank makes payment to the vendor
•
•
The Bank transfers the title over to the
customer upon payment
The customer makes payment up-front or
on a deferred basis
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STAGES OF MURABAHA
1. Promise Stage
2. Agency Stage
3. Acquiring Possession
4. Execution of Murabaha
5. After Execution of Murabaha
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STAGES OF MURABAHA
PRIOMISE STAGE
A- CREDIT APPROVAL
(under Shariah perspective)
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CREDIT APPROVAL
(under Shariah perspective)
Points to Be Considered
While Approving Credit
It is essential that the transaction
between two parties must be genuine ,
not fictitious.
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CREDIT APPROVAL
(under Shariah perspective)
Points to Be Considered
While Approving Credit
The Institution must insure that the
party from whom the item is bought is a
third party and not the customer or his
agent . In this manner the transaction
can be saved from Bai Inah (Buy Back)
which is not allowed in sharia.
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STAGES OF MURABAHA
PRIOMISE STAGE
B- Murabaha Facility Agreement
MOU
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Murabaha Facility
Agreement
MOU
 Mentioning Limits of each facility
 Security to be submitted by the
Customer
 Other terms and conditions
covering
all
the
facilities
approved for the Customer.
 The Agreement to be signed by
both the parties.
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Securities Against
Murabaha Price
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STAGES OF MURABAHA
PRIOMISE STAGE
C- Purchase Requisition
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C- Purchase Requisition

The Client orders the
institution to buy certain goods
for him and sell him the same
after acquiring.
 Containing the details of the
goods required to purchase
from the Supplier, Cost Price
and expected date of delivery
 The prerequisite is that the
goods are not already owned by
the client.
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STAGES OF MURABAHA
PRIOMISE STAGE
D- Promise to Purchase
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D- Promise to Purchase
At this stage the customer
promises the institution to buy the
goods which were acquired by the
institute on his request.
Normally Purchase requisition
contains this Promise.
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STAGES OF MURABAHA
PRIOMISE STAGE
G- PAYMENT OF MURABAHA
Goods
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G- PAYMENT OF
MURABAHA Goods
Advance payment can be made to the
supplier.
It is advisable that Murabaha payment
to be made directly to the supplier by
the bank.
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STAGES OF MURABAHA
2-AGENCY STAGE
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AGENCY STAGE
Agency Agreement is not the
condition of the Murabaha if the
institution can make direct
purchases from the supplier.

 The financial institution, does
not have the expertise to identify
the goods and negotiate an
efficient price.
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AGENCY STAGE
The customer, however, being
in the industry, can do this.
 The institution therefore
appoints him as its Agent (which
is also permissible), in the first
step of the transaction, to identify
and procure the goods on
institution behalf.
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AGENCY STAGE
This is done by execution of
Agency Agreement between the
institution and the customer.
However according to Sharia
Perspective it is preferable to
appoint the Agent other then
customer.
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AGENCY STAGE
If goods are acquired from third
party the execution of agency
agreement will be between the
institution & the third party..
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AGENCY STAGE
TYPES OF AGENCY AGREEMENT
1.
SPECIFIC AGENCY AGREEMENT
When the purchase of commodity is not of
consistent nature.
2. GLOBAL AGENCY AGREEMENT
When the purchase of commodity is of
consistent nature.
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STAGES OF MURABAHA
3-ACQUIRING POSSESION
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Acquisition Of Title &
Possession of The Asset

1-Institution must take actual or
constructive possession of the
item .
 The forms of taking delivery or
possession of items differ according to
their nature and customs.
 The item must move from the
responsibility of the supplier to the
responsibility of the institution .
 It is obligatory that the point when the
risk of the item is passed on by the
institution to the customer, be clearly
identified.
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Acquisition Of Title &
Possession of The Asset
2.Goods must exists at the time
of execution of Murabaha.

If the above two are not fulfilled than the
institution cannot execute Murabaha.
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Acquisition Of Title &
Possession of The Asset
Documentary evidence required at the
time of possession before execution of
Murabaha i.e. delivery challan, gate
passes and sales tax invoices.
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Physical Inspection
Importance of Physical
Inspection.
It is advisable that bank should
appoint one person for physical
inspection .Importance of Physical
Inspection
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STAGES OF
MURABAHA
4- EXECUTION OF
MURABAHA
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Actual Murabaha Sale
OFFER & ACCEPTANCE
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OFFER TO PURCHASE
 The Customer will make an offer to
purchase the goods acquired by him
for Bank’s behalf mentioning the
Offer Price .(Comprising Cost plus
Bank’s Profit )
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BANK’S ACCEPTANCE
 The Bank will accept the offer made by the
Customer. All the terms of the Murabaha
Transaction such as Sale Price ( Cost plus
Profit ) Due Date or Schedule of Payments
etc. must be mentioned in the Bank’s Letter
of Acceptance.
.
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RELATIONSHIP
 At this stage relation of a Buyer & Seller
comes into operation between the
institution & the client.
 Since the sale is effected on deferred
payment basis, the relation of Debtor
and Creditor also emerges between them
simultaneously.
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ISSUES IN MURABAHA
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Rollover in Murabaha
Rescheduling is allowed but
repricing is not allowed.
Rollover is also not allowed.
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Risk Management
IN
MURABAHA
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Risk
Dimensions
Banking
Risks
Credit
Liquidity
Credit
Credit
Prising risk
Market
Islamic Banks also face
-Additional asset risk
Foreign Exchange
-Greater fiduciary risks
-Greater legal risk
Solvency
Operational
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END OF PRESENTATION
JAZAKAMUALLAH
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