MURABAHA FINANCING
MURABAHA
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.
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 unIslamic purpose.

b) Should be in ownership of the
seller at the time of sale; physical or
constructive.
 Re- negotiation of price and roll
over
of
Murabaha
are
not
permitted.
 Discounting
of
Murabaha
Instruments is not permitted.
DOCUMENTATION
 CNIC
 E-CIB
 Master Murabaha Financing Agreement
 Agency Agreement
 Order Form / Draw Down Notice
 Declaration
 Purchase Evidences
 Demand Promissory Note
MASTER MURABAHA FINANCING
AGREEMENT (MMFA)
 It is an agreement between the client
and the Bank whereby the client agrees
to purchase goods from the bank from
time to time as per the terms and
conditions of this agreement.
 This is an overall facility agreement
under which various Sub-Murabahas
may be executed from time to time.
AGENCY AGREEMENT
 Through this agreement, the bank appoints
customer as its agent to select and procure
specified goods for the bank.
 This agreement needs to be signed once
between the client and the bank to cover the
specified agency period. The disbursement of
funds is done under this agreement.
 The customer should define a comprehensive
list of assets and commodities that he may
procure during the course of business from
time to time.
ORDER FORM
 This document is executed at the time of each submurabaha request i.E. Each time when the
customer requires murabaha for purchase of
assets.
 Through this document customer requests the
bank to purchase the assets from the supplier and
undertakes that it will purchase the assets from
the bank once the bank acquires them from the
market.
 The customer also undertakes to compensate for
the actual loss the bank may suffer in case that he
fails to purchase the assets from the bank.
DECLARATION
 Declaration is to be signed by the
customer immediately after the purchase
of goods as Bank’s agent.
 This document establishes the actual
sale transaction, i.e. transfer of
ownership of goods from the Bank to the
customer.
 At this stage the specific details of the
assets must be known i.e. quantity,
quality, cost etc.
Purchase Evidences in the form of
bills, sale invoice and sales tax
invoice must be furnished along with
the Declaration.
Proper timing of declaration is
extremely important especially in
cases of perishable or immediately
consumable commodities.
PAYMENT SCHEDULE
 The Payment Schedule specifies the
amount that the Client will make from
time to time or at once towards the
payment of Murabaha price.
 This shall be executed after the
execution of Declaration.
 The dates mentioned in the schedule
correspond to the day when the
payment becomes due on the client.
IMPLEMENTATION OF
MURABAHA
Steps of Implementation of Murabaha Financing
 Customer Purchasing Cycle
 Inventory holding period
 Inventory holding method
 Payment terms to supplier
 Mode of Payment
 Storage / warehousing facility
 Physical Inspection
 Timing of Offer/Acceptance
 Other industry/goods specific parameters
CASE
• Hira textile mill limited was incorporated in 1991
as a public limited company. The registered office
of the company is situated at 44 – E/ 1 Gulberg 3
Lahore. They are running the business very
successfully as shown above.
• The client has approached Alfalah Bank Limited
for Murabaha Facility amounting to Rs. 10 million
for purchase of cotton bales as they have
received a big order.
STAGE 1
Master murabaha finance agreement and
agency agreement with hira textiles after limit
approval.
Hira textiles requests via order form for the
purchase of cotton bales.
STAGE 2
Alfalah Bank Limited appointed the Hira
Textiles as their agent to purchase the cotton
bales with Agency Agreement
Alfalah Bank Limited issue Purchase order
along with Pay Order in favor of local supplier
for purchasing of cotton bales
After purchasing the Raw Material hira textiles
will intimate Alfalah Bank Limited along with
asset description and Invoices.
Letter of request /order form
Date: 22-12-2010
Alfalah Bank limited
Dear sir,
In pursuance of my/our acceptance of the terms and conditions as per your facilities offer letter No. dated
Marabaha Financing agreement dated
and Agency Agreement dated
,
Master
I/we hereby request you to kindly
arrange the purchase of the following goods/commodities:
Sr. No.
Description of
Goods/Commodities
1
Cotton bales
2
Other Raw Material
Note: The Goods are available for sale with M/s
Authorized signatures
Name/Company/firms
Quantity
Other
Specifications
Cost
Rs 7M
3M
Total
Rs. 10 M
STAGE 3
Hira Textiles will submit Declaration along
with summary Payment Schedule.
After physical inspection Alfalah Bank Limited
will accept Declaration and will issue Delivery
Order along with Transfer Letter in favor of
Hira Textiles
STAGE 4
On the due date Hira Textiles will pay the
Contract price of Murabaha Facility to Alfalah
Bank Limited.
CONTRACT PRICE
Contract Price = 10 M * (1+ (k + 3.5%))
ALFALAH BANK LIMITED
DECLARATION FOR MURABAHA TRANSACTION
Date:
Alfalah Bank Limited
Lahore
With reference to our Agency Agreement dated
,I/we hereby confirm that I/we have purchased the below
mentioned Assets on behalf of yourselves for Rs.
And have taken the delivery thereof from the supplier.I/we
also confirm that I/we have inspected the said Assets and found the same to be exactly confirming to the quantity
specified in our letter of request dated
.
S. No.
Date
Description
Quantity
Value in Rs
1
Cotton Bales
Rs. 7 M
2
Other Raw Material
Rs. 3 M
Total Rs.
Rs. 10 M
I/we am/are now interested to purchase the abovementioned Assets from your selves on spot/deferred payment basis for
a period of as the same Assets are suited to my/our needs. Your requested kindly inform me/as the sale price of the
aforementioned Assets.
Authorized signatures
MURABAHA TRANSACTION VERIFICATION
FORM
We have verified the goods as mentioned in the schedule below purchased by our agent M/s
reference to Agency Agreement dated
, the goods were verified.
Physical
√
Serial No.
with
Constructive
schedule
Description of Value in Rs.
goods
1
Cotton Bales
Rs. 7 M
2
Other Raw
Material
Rs. 3 M
Total
On behalf of Alfalah Bank Ltd
Name:
Designation:
Signatures:
Date:
Rs. 10 M
On behalf of Customer
Name:
Designation:
Signatures:
Date :
DEMAND PROMISSORY NOTE
On demand I / we
, promise to pay Alfalah Bank Limited transacting alla, Islamic
Banking in Pakistan. Or order sum of money of Rs.
(Rupees
only) for the value/consideration received.
Date
.
For and on behalf of
CUSTOMER NAME Hira Textile Mill
Authorized signatures
Witnesses:
1.
Name:
NIC No:
Address:
.
2.
Name:
NIC No:
Address:
.