Murabaha

Murabaha sale is divided into two types:

1. Ordinary Murabaha sale:

There are two parties to it, the seller and the buyer. The seller is an ordinary trader who buys a commodity without depending on a prior promise of purchase, then he displays it for Murabaha sale for a price and a profit to be agreed upon.

2. Murabaha sale connected with a promise:

There are three parties to it. The seller, the buyer and the bank as an intermediary trader between the buyer and the seller. The bank here does not purchase unless the buyer specifies his desire and a prior outstanding promise to purchase.

The mode of Murabaha sale connected to a promise is used by the Islamic banks which undertake the purchase of commodities according to the specifications requested by the customer and then resell them on Murabaha to the one who promised to buy for its cost price plus a pre-agreed profit.

There are different forms to the application of Murabaha sale connected to a promise of purchase. Some of these forms are determined by whether the promise is binding or not. Other forms are determined by how the bank receives the commodity in the case of the first sale. The bank may receive the commodity directly or through one of its agents or it can authorize the buyer to receive the commodity.

FEATURES

• Flexible repayment terms
• Competitive pricing
• Fixed/Reducing balance basis
• Minimum Murabaha finance: USD 50,000/-
• Variable tenors

The practical steps of the Murabaha sale

1. The purchaser determines his needs

The purchaser: Determines the specifications of the commodity he wants and requests the seller to determine the price.

The seller: Sends a quotation valid for a certain period.

2. Signing a promise to purchase agreement

The purchaser: Promises to buy the commodity from the bank on Murabaha sale for the cost of the commodity plus the agreed upon profit.

The bank: Studies the request and determines the condition and securities for approval.

3. The first sale contract

The bank: notifies the purchaser of its approval to purchase the commodity. The bank may pay the price immediately or as per the agreement.

The seller: Expresses his approval to the sale and sends the invoice

4. Delivery and receipt of the commodity

The bank: authorizes the beneficiary to receive the commodity.

The seller: sends the commodity to the place of delivery agreed upon.

The purchaser: undertakes the receipt of the commodity in his capacity as legal representative and notifies the bank of the execution of the proxy.

5. The Murabaha sale contract

The two parties (the bank and the purchaser) sign the Murabaha sale contract according to the agreement of the promise to purchase.

AREAS OF APPLICATIONS

Murabaha is one of the most widely used modes of financing by the Islamic banks. It is suitable for partial financing of investment by customers operating in industry or trade. It enables the customer /investor to purchase finished goods, raw material, machines or equipment from the local market or through import.

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