IB1005
DEPOSITS AND FINANCING PRACTICES
OF ISLAMIC FINANCIAL INSTITUTIONS
CHAPTER 4 : COMMODITY MURABAHAH
COMPILED BY
HAMDAN HJ IDRIS, BSc Econs, MBA (Islamic Banking & Finance)
Certified Professional Trainer (MIM)
Industry Expert
INCEIF
PRESENTED BY
HJ MAHMUD HJ BUNTAT, MBA (AUOL, UK), DBM (Swansea Inst., UK), CIL (UIA)
Part-time Lecturer (INCEIF)
Former Head of Islamic Banking Division, OCBC Bank (Malaysia) Bhd
Chapter 4: Commodity Murabahah
Buy & Sell
The tenets and perequisities
1. Seller
• Able to carry out his/her responsibilities.
• Not restricted from dealing in business
transactions.
• Not being forced to enter contract
2. Buyer
• Able to carry out his/her responsibilities.
• Not restricted from dealing in business
transactions.
• Not being forced to enter contract

The parallel back-to-back transactions involving
the commodities takes place simultaneously and
therefore, does not expose the parties to the
price risk associated with the underlying
commodity.
Commodity Murabaha Deposits
(CMD)

Commodity murabaha serves as a deposit
placement facility as well as an instrument to
mop up surplus cash in the banking sector.

In the latter, the central bank takes up the role
of the deposit taker, while in the former the role
is taken up by commercial banks.

To accommodate depositors with lower risk
appetites, some Islamic banks offer a
commodity murabaha deposits (CMD).
To the deposit-taking bank, CMD is a fixed
rate liability (FRL).

By locking the murabaha price, the total profit
can be known upfront.

The CMD is based on the contract of murabaha
with a promise to repurchase. By doing so, CMD
guarantees capital preservation and fixed return.
WORKFLOW CMB
6.DTB sells CPO to Supplier
2.DTB pays Cash
Deposit-Taking
Bank (DTB)
Supplier
3.Supply CPO
7. Supplier pays cash
4.DBP sells
CPO to DTB
1.DBP
Credited
$20 million
with Agent
Supplier
5.DTB pays DPB
By lump-sum
Deferred payment
Deposit-Placing
Bank (DBP)
$20 million
Asset
$20m @ 7%
Liability
$20m @ 3%
DTB’s t-account
The structure of CMD is explained below:
Deposit-placing Bank (DPB) appoints the deposittaking bank (DTB) as an Agent to purchase a
commodity (crude palm oil or CPO) from a
Supplier.

DTB = Agent
•
The DTB receives the money for the payment of
CPO from DPB.

DTB purchases CPO from Supplier on cash basis.

Agent holds legal ownership and DPB holds
beneficial ownership.

DPB sells CPO to DTB at murabaha price, based
on the placement value, annual profit rate and
tenor. No physical delivery taking place. DTB hold
beneficial ownership of CPO.

DTB will make full settlement to DPB in bullet
payment at the end of tenor.

DTB sells CPO to Supplier in exchange for cash
payment.

DTB invest the cash proceeds into its financial
operations.
There are many types of CMD. A CMD structure
will change based on the following
circumstances:1. Types of commodities utilized in the product.
In Malaysia, crude palm oil is common while in
the GCC and Europe copper is usually a
popularchoice.
2. Some DTBs prefer to purchase the commodity
through a broker. Brokers usually earn $50
per $1 million transactions. When DTBs acted
as an Agent, they earn a commission around
25 basis points (0.25%)
3. In some structures, the DTBs purchase the
commodity directly from the Supplier.
There are many types of CMD. A CMD structure
will change based on the following
circumstances:
Types of commodities utilized in the product. In
Malaysia, crude palm oil is common while in the
GCC and Europe copper is usually a popular
choice.
•
Some DTBs prefer to purchase the commodity
through a broker. Brokers usually earn $50 per
$1 million transactions. When DTBs acted as an
Agent, they earn a commission around 25 basis
points (0.25%)

In some structures, the DTBs purchase
commodity directly from the Supplier.
the
VARIABLES IN CMD MASTER
AGREEMENT
• DTB and DPB
 Agent
 Supplier
 Cost price and Murabaha price
 Yield and tenor
 Settlement date
 Commodity
 Prepayment
 Rebate
 Late payment
 Governing Law
 Tax and Stamp duty
 Event of Default
 Have
a good day 
 May God bless you
 Thank you and Wassalam