concept of Murabahah

Murabahah is a form of sale where the cost of the goods to be sold as well as the profit on
the sale is known to both parties. The purchase and selling price and the profit margin must
be clearly stated at the time of the sale agreement. Payment of the Murabaha price may be in
spot, in instalments or in lump sum after a certain period of time.Murabahah is a fixed price
contract and popular mode of trade.

As per Murabaha’s modus operandi, client approaches the Islamic bank with a
request to purchase certain goods from an independent supplier.Client promises to purchase
the same goods upon the Islamic bank getting title and possession.The sale price to the client
will comprise of the Islamic bank’s cost plus its profit ascertained as per agreement with client,
to be paid on agreed.An Islamic bank establishes letters of credit as purchaser in favor of the
supplier and sells the goods to the client upon receipt on murabaha basis.For locally available
goods, Islamic bank staff acquires physical possession to the goods and then delivers them to
the client after the client signs the murabaha contract.

This way, sharia requirement of owing goods and having possession (physical or
constructive) prior to sale on murabaha is fulfilled. Constructive title or possession is through a
nominated agent.Islamic bank may ask the client to provide certain amount as security deposit
or to furnish any acceptable guarantee / security.Documents are received in Islamic bank’s
name as purchaser, thereby establishing its ownership and possession to the
goods.Supplier’s commercial invoice in Islamic bank’s name establishes its title whereby bill of
lading made out to Islamic bank’s order provides possession to it before it sells the goods to
the client.Title and possession to the goods get passed to client upon signing the murabaha
contract and endorsement of documents by Islamic bank to it .
Client pays the murabaha amount to Islamic bank on agreed deferred basis, which
could be in lump-sum or in installments.In case of client’s failure to purchase goods, Islamic
bank can sell them to a third party and recover shortfall (if any) from client, including to forfeit
security deposit or claim against any guarantee / security.
commodity of murabahah
concept of musyakarah mutanaqisah
ijarah muntahiyah bi at tamlik

Riba 'al-Buyu'

Riba of this type also arises from the sale of ribawi goods. It is an inequality in the weight or quantity of
the exchange of 2 ribas or the exchange is made in earnest.

Riba Al-Nasi ah is derived from the Arabic root ''nasa'a'' which means to ''delay" or "defer". This type of
Riba falls into two categories: First: Charging interest on the loan lent to an insolvent debtor. This
category was commonly practiced in the pre-Islamic era. A person, for example, may lend another
person a sum of money to be paid back on a specified date. When the date agreed upon is due, the
creditor gives the debtor the choice either to repay the debt or defer repayment in return for charging
additional interest on the principal.

Riba an-Nasi ah. It is a sale or exchange of 2 items of the same kind and the exchange is formidable
(imperfect in 1 time).For example, Aminah bought 6 grams of gold for a hefty RM1,000 (meaning, get
the gold today, pay it next month). Riba an-Nasa 'is also called Nasiah riba an-Nasiah.

Riba al-Fadl is derived from the Arabic root "fadl" which means "increase" or "growth". This type of Riba
involves increase in either of the two articles subject to exchange. According to Hadith of the Prophet,
six things are susceptible to Riba Al-Fad: gold, silver, wheat, barley, dates and salt.It is prohibited to
charge interest on such transactions where any of the above things are exchanged for articles of the
same type.

Riba al-Fadl, It is a sale or exchange between two similar types of ribbons of different weight (if sold by
weight) or quantity (if sold in quantity).For example, Convert 10 grams of gold (type 916) to 12 grams of
gold (type 750 quality). This type of exchange is illegal because it should be both scales (example 10
grams or 12 grams). Quality differences do not affect the law.
Exchange based contract can be sub into sale based on contracts and lease based contracts. Example of
sale based on contracts are al murabahah, al tawarruq

Murabaha, also referred to as cost-plus financing, is an Islamic financing structure in which the seller and
buyer agree to the cost and markup of an asset. The markup takes place of interest, which is illegal in
Islamic law. As such, murabaha is not an interest-bearing loan (qardh ribawi) but is an acceptable form
of credit sale under Islamic law. As with a rent-to-own arrangement, the purchaser does not become the
true owner until the loan is fully paid.

Tawarruq is an arrangement whereby a person, in need of liquidity, purchases a commodity from a

seller on credit at a higher price. The person who acquires commodity in this way is called 'Mutawarriq'.

Lease based contracts are ijarat al ayan, ijarat al khadamat and Ijarat al-Ashkhas

type of ijarah contract which has the usufruct of assets and properties (a'yan) as underlying. In this
particular meaning, ijarah refers to the transfer of the usufruct of a specific property from one person to
another in exchange for a specified rent amount. This type of ijarah is more popular than ijarat al-
ashkhas because it is (i.e., ijarat a'yan) is generally used as a form of investing and also as a mode of
financing. The rules of ijarah are very similar to the rules of sale (ba'i), because both types of
transactions involve the transfer of something from one party to another against a preset consideration
(iwadh or badal).

Ijarat al-ashkhas is an Arabic term that translates as hire of people.A type of ijarah contract in which the
underlying usufruct (manfa'ah) is a person’s work, effort, expertise, etc. According to the majority of
fuqaha (jumhur), the contract of ijarah has nothing to do with the person himself/herself, but rather
with his/her labor. However, some fuqaha of Shafi'e school of thought (mazhab) opined that the
underlying of ijarah is the worker himself/herself since usufruct doesn't exist at the time of contracting.
Ibn Taymiah and Ibn al-Qayim were of the opinion that such type of ijarah is particularly fit for
renewable sources of labor.It is also known as ijarat al-a'amal.

Ijarat al khadamat is a serviced contract