Center of Islamic Finance
COMSATS Institute of Information Technology
Lahore Campus
Adopted from open source lecture of
Mufti Najeeb Khan.
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 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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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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 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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 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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 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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 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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 Stage
One (a) for Murabaha financing.
• Client approach
Murabaha.
Bank
the
bank
Facility
approved
for
facility
through
Client
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 Stage
One (b) for Murabaha financing.
• Client and bank sign an agreement to enter into
Murabaha.
Bank
Murabaha
Facility
Agreement
Client
MOU
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 Stage
One (c) for Murabaha financing.
• Client submit the purchase requisition to the bank.
Bank
Client
purchase
requisition
/Promise
to
the bank.
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 Stage
Two (a) for Murabaha financing.
• Client appointed as agent to purchase goods on
bank’s behalf
Bank
Agreement to
Murabaha
Client
Agency
Agreement
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 Stage
•
Two (b) for Murabaha financing.
Bank gives money to supplier through client’s account
for purchase of goods.
Bank
Islamic
Bank
Agreement to
Murabaha
Client
Agency
Agreement
Disbursement to the
Supplier
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 Stage
three for Murabaha financing.
• Client purchases goods on bank’s behalf and takes
their possession.
Transfer of Risk
Banck
Vendor
Client purchases
goods and takes
possession
Client
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 Stage
four (a) for Murabaha financing.
• Client makes an offer to purchase the goods from
bank.
Client
Bank
Offer to
purchase
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 Stage
four (b) for Murabaha financing.
• Bank accepts the offer and sale is concluded.
Murabaha
Agreement
+
Transfer of Title
Bank
Client
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 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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VENO
VENDOR
ISLAMIC BANK
Agreement
CUSTOMER
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•
The customer approaches the Bank with the
request for financing.
•
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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 Rescheduling
is allowed but repricing is
not
allowed.
 Rollover
is also not allowed.
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Risk
Dimensions
Banking
Risks
Credit
Liquidity
Credit
Prising risk
Market
Islamic Banks also face
-Additional asset risk
-Greater fiduciary risks
-Greater legal risk
Foreign Exchange
Solvency
Operational
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THANK YOU
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