Center of Islamic Finance

COMSATS Institute of Information Technology

Lahore Campus

Sale Contract /Murabaha

Adopted from open source lecture of

Mufti Najeeb Khan.

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 MURABAHA

 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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Difference between Murabaha &
Musawima

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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 BANKING MURABAHA

 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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BANKING MURABAHA
 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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SCOPE OF MURABAHA
 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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SCOPE OF MURABAHA

 Itis 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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1- Promise stage

 Stage One (a) for Murabaha financing.

• Client approach the bank for facility through Murabaha.

Bank Client
Facility
approved

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1- Promise stage

 Stage One (b) for Murabaha financing.

• Client and bank sign an agreement to enter into

Murabaha.

Bank Client
Murabaha
Facility
Agreement
MOU

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1- Promise stage

 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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2- Agency stage

 Stage Two (a) for Murabaha financing.

• Client appointed as agent to purchase goods on

bank’s behalf

Bank Client
Agreement to
Murabaha

Agency
Agreement

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2- Agency stage

 Stage Two (b) for Murabaha financing.

• Bank gives money to supplier through client’s account

for purchase of goods.

Bank
Islamic
Agreement to Client
Bank Murabaha
Agency
Agreement

Disbursement to the
Supplier 14
3. Acquiring Possession

 Stage three for Murabaha financing.

• Client purchases goods on bank’s behalf and takes

their possession.
Client purchases
goods and takes
Transfer of Risk Vendor possession

Banck Client

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4. Execution of Murabaha

 Stage four (a) for Murabaha financing.

• Client makes an offer to purchase the goods from

bank.

Bank
Client

Offer to
purchase

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4. Execution of Murabaha

 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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4. Execution of Murabaha

 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 Client
Payment of Price

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 Murabaha
GENERAL MECHANICS

VENO

VENDOR ISLAMI BANK CUSTOMER

Agreement
C

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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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ISSUES IN MURABAHA

 Rescheduling is allowed but repricing is not

allowed.

 Rollover is also not allowed.

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Risk Management
IN
MURABAHA

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 Credit
Risk
Dimensions
Liquidity
Credit

Prising risk
Banking
Risks
Market
IslamicBanks
Islamic Banksalso
alsoface
face
Additionalasset
--Additional assetrisk
risk Foreign Exchange
Greaterfiduciary
--Greater fiduciaryrisks
risks
Greaterlegal
--Greater legalrisk
risk Solvency

Operational
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THANK YOU

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