CHAPTER 2

ISLAMIC CONTRACT IN THE

INTERNATIONAL TRADE
PREPARED BY NURUL FATHIYAH BT KAMARUL BAHRIN
 ISLAMIC
 Financing is based on buy and sell
 Financing cost (e.g profit) is charged upfront but payable tail-end.
Financing costs are fixed and made known to customer on transaction day.

ISLAMIC VS  Financing is guided by shariah principles

CONVENTION
CONVENTIONAL
AL TRADE
PRODUCT  Loan based on financing
 Loan charged based on interest and payable upfront. Interest
charged based on floating rate approach.
 No shariah requirement applied
  The Islamic banking system has to abide to the rules of the
Shariah.
 Shariah is an Islamic law, the rules and norms of which

SHARIAH
emanated from two primary sources which are the Holy Quran
and the Sunnah (the living tradition of Prophet Muhammad
PRINCIPLES S.A.W).
 Thus, the basic principles underlying Islamic transactions are
the prohibition of riba and the sharing of profit and loss
between a bank and its customers.
  Wakalah (Agency)
 Musharakah (Joint Venture Profit Sharing)
SHARIAH  Murabaḥah (Cost Plus/Deferred Payment Sale)
CONTRACT
 Bay’ Al Dayn (Sale of Debt)
INVOLVED IN
THE TRADE  Tawarruq (Tripartite Sales)
FINANCING  Kafalah (Guarantee)
 Ujr’ (Fee)
  A contract to authorize a third party to act on our behalf based
on the agreed terms and conditions.
 Agent act as at trustee and thus liable to any loss /damage
1. WAKALAH caused by his negligence or misconduct.

(AGENCY)  Essentials:
i. Capacity to enter into a contract-sane, baligh and competent.
ii. Delegated task must be permissible by Shariah.
iii. Authority to appoint an agent.
bank customer

Car dealer
  Joint-Venture (JV) is a form of partnership where two or more parties
combine capital to share profit (and loss).
 Partners have similar rights and liabilities.
 Essentials:
i. Offer and Acceptance
ii. Partners – capacity to enter a contract.

2.MUSYARAK iii.
iv.
Shariah compliance activities / businesses.
Profit and Loss sharing based on pre-agreed ratio.

AH (JOINT v. Profit is not fixed / guaranteed or in absolute amount.

VENTURE)  How does it works?

➢ Customer and Bank jointly acquired the commodity at 60:40 equity ratio.
➢ Customer takes possession of the commodity and sell it off as agreed
upfront in the JV
Agreement
➢ Partners share the profit from the JV.
  Murabahah refers to a sale and purchase of an asset where the acquisition cost and the
mark-up are disclosed to the purchaser.
 Murabahah is a sale and purchase contract which is binding in nature.
 Thus, the contract shall not be terminated unilaterally by any of the contracting parties.
 The specific inherent nature of the contract of murabahah is the sale contract which is
based on the element of trust in disclosing the cost and mark-up.
 The common inherent nature of a sale contract is the transfer of ownership of the asset
from the seller to the purchaser.

3.MURABAH  Murabahah contract is a type of “trust sale” contract under Shariah in which the

AH
purchaser relies upon the integrity of the seller to acquire the desired Shariah compliant
asset at a reasonable cost.
 In line with the underpinning element of trust in Murabahah contract, the seller is
required to disclose the breakdown of the selling price to the purchaser, which
comprises the acquisition cost and the mark-up or profit margin.
 This first step is based on Murabahah Guidelines issued by BNM.
 Appointment of Purchasing Agent
 Receipt of Purchase Undertaking from thE Customer (Wa’d)
 MODUS
OPERANDI
OF
MURABAHA
H
  A sale and purchase transaction of a quality debt and the debt
BAY AL- must be created from the business transaction that conforms
with Islamic laws.
DAYN (SALE  The sale of the debt to Bank must be on cash basis.
OF DEBT)  BA-i sales / OBP-i / CBN-i / ECR-i post shipment
 MODUS
OPERANDI
OF BAY AL-
DAYN
 exporter importer

Exporter’s bank
Importer’bank
  Purchase commodity on credit and later sell it to 3rd party on
cash term.
 Sale Contract – buys on deferred payment term and

4. subsequently sells it to 3rd party for cash.

 Tawarruq – the purchase was not to enjoy the usufruct of the
TAWARRUQ asset but to facilitate them to generate liquidity.
 Receipt of Purchase Undertaking from the Customer (Wa’d).
 Bank appointed as Sales Agent.
 MODUS
OPERANDI
OF
TAWARRUQ
 CUSTOMER

TAWARRUQ BANK

(FINANCING)

BROKER A BROKER B
(PURCHASE) (SELL COMMODITY)
  It is a promise by a 3 party to carry out the obligations owed by
one person to another in the event of default.
 Commission is imposed based on the principle of Ujr (fee).
 An irrevocable undertaking to guarantee performance or
financial standing of a third party.
5.KAFALAH  To assume other parties liabilities. Nevertheless, the liability of

(GUARANTE the guaranteed party is not freed.

 Contract made between two parties.
E)  1st party agree to discharge the liability of a 3rd party in case of
default by the 3rd party.
 An undertaking to pay an agreed sum if the customer fails or
default in fulfilling his obligations under the terms of
guarantee.
  Explain the operation of tawaruq in perspective of deposit
TUTORIAL  Explain concept of bay-al-dayn based on your understanding.
QUESTION  Elaborate about kafalah contract.
THANK
YOU