BAI MURABAHA

Flow Chart(Process)Fatwa

Declaration of Assets

Oder Form/Draw Down Notice

Schedule of Assets

Purchase Evidence

Payment Schedule

How Bai Murahaba

Transaction Execute?

MURABAHA (Arabic مرابحه):

• A sale transaction, compliant with shariah, where the seller expressly mentions the cost he has incurred on the commodities to be sold and sells it to another person by adding some profit or mark-up, which is known to the buyer.

• Thus, Murabaha is not a loan given on interest• It is a sale of a commodity for cash/deferred

price.

MURABAHA (Arabic …Cont’d:(مرابحه

Banking Murabaha

It is a contract wherein the institution, upon request by the customer, purchases an 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.

MURABAHA (Arabic مرابحه):Cont’d…

• Rent-to-0wn• Most popular and most common mode of

Islamic financing.• Mark up or Cost plus financing.• It has been estimated that 80 to 90 percent

of financial operations of some Islamic banks belong to this category.

Rukun (PILLERS)of Murabaha

• Seller (Front and Back Stage)• Buyer (Client)• Price (Mark-up)• Assets (Merchandise or Goods)• SIGHAH (IJAB)AND ACCEPTANCE (QABUL)

Payment Mode• Payment of Murabaha price may

be:i. At spot ii. In installments iii. In lump sum after a certain time

Requirements of Murabaha

• There are a number of requirements for Murabaha transaction to be a real transaction to meet the Islamic standards of a legal sale. The whole of Murabaha transaction is to be completed in two stages.

• First Stage• Second Stage • Two Sale Contract

How Murabaha Works (Operation)

Bank purchase the Asset

from vendor

Bank sell to client

Client pay deferred payment

Client identifythe assets

from vendor

Council of Islamic Ideology of Pakistan

The Council of Islamic Ideology of Pakistan stated that Murabaha should be:• Undertaken only when the borrower wants to

purchase some item must involvei. The item being purchased by the bankii. Under the ownership and possession of the bankiii. Must assume the risk for that item

• The item then being sold to the customer through a valid sale

EVIDENCE

Murabaha and Default

• Murabaha default is an increasing concern for Islamic banks.

• Many banks believe defaulters should be blacklisted.

• Arrangement is permitted in Shariah, the body of Islamic law.

• Debtor is facing a genuine hardship.• Action in cases of wilful default.

Existence in Society• It is used to provide finance in various and

diverse sectors• Consumer Financing• Real State• Production Sector• Letter of Credit

Documents Required for Murabaha

• There are a number of documents involved in a Murabaha financing transaction. The most essential of these documents are:

1) Fatwa (Sharia’a Compliance) 2) Order form/ Draw down notice3) Declaration form4) Schedule of Assets 5) Purchase Evidence 6) Payment Schedule

1) Fatwa It is a legal pronouncement or opinion concerning Islamic law provided by an Islamic legal specialist, mainly a Sharia’s Scholar.

2) Oder form

Contain a request from the side of client to purchase these item for client.

3) Declaration formAt this stage the specific details of the assets must be known i.e. quantity, quality, cost etc.

4) Schedule of Assets Detail of assets and the proportionate ownership of bank is the same as mention in the declaration form.

5) Purchase Evidence Purchase Evidences in the form of bills, sale invoice, sales tax invoice must be furnished along with the Declaration specifying the full details of the goods purchased.

6) Payment Schedule The Payment Schedule specifies the amount that the Client will make from time to time or at once towards the payment of Murabaha price.