1 murabaha- by-najeeb_kkhan
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Sale Contract /Murabaha .
Muhammad Najeeb KhanMuhammad Najeeb Khan
CONTRACT IN ISLAM
CONTRACT
SUBJECT MATTER
CONTRACTORS WORDING OFCONTRACT
•Specified •Quantified
•Non-restricted•Sane•Mature
•Present•Unconditional•Non-contingent
Law of Contract
Islamic Contract: It is connection between the offer and the acceptance in a manner that results the proper affects.
OfferAcceptanceSubject matter
ISLAMIC SALE
DEFINITION OF SALE(BAI)
– exchange of a thing of value with another
thing of value with mutual consent.
– the sale of a commodity in exchange of
cash.
ISLAMIC SALE
(1)-VALID SALE ( Bai Sahih)
– a sale is valid if all elements together with their conditions are present
– elements of valid sale are• Contract ( Aqd )• Subject matter ( Mabe’e)• Price ( Thaman )• Possession or delivery ( Qabza )
CONTRACT ( Aqd )
• Offer & Acceptance ( Ijab-o-Qobool)– Oral ( Qauli )– Implied ( hukmi )
• Buyer and seller ( Muta’aquadeen ) must be– Sane– Mature
• Conditions of contract ( Sharaet-e-Aqd )– sale must be non-contingent
– sale must be immediate
SOLD GOOD OR SUBJECT MATTER ( Mube’e )
• Existing
• Valuable
• Usable
• Capable of ownership/title
• Capable of delivery/possession
• Specific & Quantified
• Seller must have title & risk
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MURABAHAMURABAHA
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 Difference between Murabaha & MusawimaMurabaha & 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 MURABAHABANKING MURABAHAIt 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 MURABAHASCOPE 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
It is 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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Stage One (a) for Murabaha financing
1. Client approach the bank for facility through Murabaha.
1- Promise stage1- Promise stage
Facility approved
Bank Client
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Stage One (b) for Murabaha financing
1. Client and bank sign an agreement to enter into Murabaha.
1- Promise stage1- Promise stage
Murabaha Facility
Agreement
MOU
Bank Client
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Stage One (c) for Murabaha financing
. Client submit the purchase requisition to the bank.
1- Promise stage1- Promise stage
purchase
requisition
/Promise to the
bank.
Bank Client
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2. Client appointed as agent to
purchase goods on bank’s behalf
2- Agency stage 2- Agency stage
Agency
Agreement
Bank ClientAgreement to
Murabaha
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. Bank gives money to supplier
through client’s account for
purchase of goods.
2- Agency stage 2- Agency stage
Stage Two for Murabaha financing
Agreement to Murabaha
Agency Agreement
Disbursement to the Supplier
Islamic Bank Bank
Client
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. Client purchases goods on bank’s
behalf and takes their possession.
3. Acquiring PossessionStage three for Murabaha financing
Client purchases goods and takes possession
Transfer of Risk Vendor
Bank Client
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. Client makes an offer to
purchase the goods from bank.
4. Execution of Murabaha
Stage four (a) for Murabaha financing
Offer to purchase
Bank Client
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. Bank accepts the offer and
sale is concluded.
4. Execution of Murabaha
Stage four (b) for Murabaha financing
Murabaha Agreement
+ Transfer of Title Bank Client
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. Client pays agreed price to bank
according to an agreed schedule.
Usually on a deferred payment
basis (Bai Muajjal)
4. Execution of Murabaha
Stage four (b) for Murabaha financing
Payment of Price Bank Client
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MurabahaMurabahaGENERAL MECHANICS
CUSTOMER
ISLAMIC
BANK
AgreementVENDOR
• 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
• 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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STAGES OF MURABAHA
11. Promise Stage. Promise Stage
2. Agency Stage2. Agency Stage
3. Acquiring Possession 3. Acquiring Possession
4. Execution of Murabaha 4. Execution of Murabaha
5. After Execution of Murabaha 5. After Execution of Murabaha
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STAGES OF MURABAHA
PRIOMISE STAGE A- CREDIT APPROVAL
(under Shariah perspective)
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CREDIT APPROVALCREDIT APPROVAL
(under Shariah perspective) (under Shariah perspective)
Points to Be Considered While Approving Credit
It is essential that the transaction between two parties must be genuine , not fictitious.
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CREDIT APPROVAL (under Shariah perspective)
Points to Be Considered While Approving Credit
The Institution must insure that the party from whom the item is bought is a third party and not the customer customer or his agentagent . In this manner the transaction can be saved from Bai Inah (Buy Back)Bai Inah (Buy Back) which is not allowed in sharia.
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STAGES OF MURABAHA
PRIOMISE STAGE B- Murabaha Facility Agreement
MOU
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Murabaha Facility Agreement
MOU Mentioning Limits of each facility Security to be submitted by the
Customer Other terms and conditions
covering all the facilities approved for the Customer.
The Agreement to be signed by both the parties.
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Securities Against Securities Against Murabaha Price Murabaha Price
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STAGES OF MURABAHA
PRIOMISE STAGE PRIOMISE STAGE
C- C- Purchase RequisitionPurchase Requisition
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C- C- Purchase RequisitionPurchase Requisition The Client orders the
institution to buy certain goods for him and sell him the same after acquiring.
Containing the details of the goods required to purchase from the Supplier, Cost Price and expected date of delivery
The prerequisite is that the goods are not already owned by the client.
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STAGES OF MURABAHA
PRIOMISE STAGE PRIOMISE STAGE
D- D- Promise to PurchasePromise to Purchase
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D- Promise to Purchase
At this stage the customer promises the institution to buy the goods which were acquired by the institute on his request. Normally Purchase requisition contains this Promise.
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STAGES OF MURABAHA
PRIOMISE STAGE PRIOMISE STAGE G- G- PAYMENT OF MURABAHA PAYMENT OF MURABAHA
GoodsGoods
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G- G- PAYMENT OF PAYMENT OF MURABAHA GoodsMURABAHA Goods
Advance payment can be made to the supplier.
It is advisable that Murabaha payment to be made directly to the supplier by the bank.
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STAGES OF MURABAHASTAGES OF MURABAHA
2-AGENCY STAGE2-AGENCY STAGE
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AGENCY STAGE
Agency Agreement is not the condition of the Murabaha if the institution can make direct purchases from the supplier.
The financial institution, does not have the expertise to identify the goods and negotiate an efficient price.
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AGENCY STAGEAGENCY STAGE
The customer, however, being in the industry, can do this.
The institution therefore appoints him as its Agent (which is also permissible), in the first step of the transaction, to identify and procure the goods on institution behalf.
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AGENCY STAGEAGENCY STAGE
This is done by execution of Agency Agreement between the institution and the customer.
However according to Sharia Perspective it is preferable to appoint the Agent other then customer.
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AGENCY STAGE
If goods are acquired from third party the execution of agency agreement will be between the institution & the third party..
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AGENCY STAGE
TYPES OF AGENCY AGREEMENT
1. SPECIFIC AGENCY AGREEMENT When the purchase of commodity is not ofconsistent nature.
2. GLOBAL AGENCY AGREEMENT When the purchase of commodity is of consistent nature.
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STAGES OF MURABAHASTAGES OF MURABAHA
3-ACQUIRING POSSESION3-ACQUIRING POSSESION
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Acquisition Of Title & Possession of The Asset
1-Institution must take 1-Institution must take actual or constructive actual or constructive possession of the possession of the item .item .
The forms of taking delivery or possession of items differ according to their nature and customs.
The item must move from the responsibility of the supplier to the responsibility of the institution .
It is obligatory that the point when the risk of the item is passed on by the institution to the customer, be clearly identified.
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Acquisition Of Title & Possession of The Asset
2.Goods must exists at the time of execution of Murabaha.
If the above two are not fulfilled than the institution cannot execute Murabaha.
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Acquisition Of Title & Possession of The Asset
Documentary evidence required at the time of possession before execution of Murabaha i.e. delivery challan, gate passes and sales tax invoices.
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Physical Inspection
Importance of Physical Inspection.It is advisable that bank should appoint one person for physical inspection .Importance of Physical Inspection
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STAGES OF STAGES OF MURABAHAMURABAHA
4- EXECUTION OF MURABAHA
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Actual Murabaha SaleActual Murabaha Sale
OFFER & ACCEPTANCEOFFER & ACCEPTANCE
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OFFER TO PURCHASE
The Customer will make an offer to purchase the goods acquired by him for Bank’s behalf mentioning the Offer Price .(Comprising Cost plus Bank’s Profit )
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BANK’S ACCEPTANCE
The Bank will accept the offer made by the Customer. All the terms of the Murabaha Transaction such as Sale Price ( Cost plus Profit ) Due Date or Schedule of Payments etc. must be mentioned in the Bank’s Letter of Acceptance.
.
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RELATIONSHIP
At this stage relation of a Buyer & SellerBuyer & Seller comes into operation between the institution & the client.
Since the sale is effected on deferred payment basis, the relation of Debtor Debtor and Creditorand Creditor also emerges between them simultaneously.
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ISSUES IN MURABAHAISSUES IN MURABAHA
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Rollover in MurabahaRollover 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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Risk Dimensions Credit
Banking Risks
Credit
Credit Liquidity
Prising risk
Market
Foreign Exchange
Solvency
Operational
Islamic Banks also face
-Additional asset risk
-Greater fiduciary risks
-Greater legal risk
Islamic Banks also face
-Additional asset risk
-Greater fiduciary risks
-Greater legal risk
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END OF PRESENTATION
JAZAKAMUALLAHJAZAKAMUALLAH
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