• Murabaha is a particular kind of sale where

the seller expressly mentions the cost of the

sold commodity he has incurred, and sells it
to another person by adding some profit or
mark-up thereon.
 A simple sale in Arabic is called Musawamah - a sale without
disclosing or referring to the cost of goods sold

 However when the cost price is disclosed to the client, it is

called Murabaha.

 The distinguishing feature of Murabaha from ordinary sale is

- The seller discloses the cost to the buyer
- And a known profit is added

 A simple Murabaha is one where there is cash payment and

Murabaha Muajjal is one on deferred payment basis.
 In case of riba, lender of the money gets a specific interest on
the amount lended, after a specific time period, whereas the
principle retains in the ownership of the lender.

 While in murabaha, there is no loan, instead one person sells a

commodity to other and the possession as well as the risk
transfers to the buyer, and the seller get his reward in the shape
of profit.
 Combination of two contracts
 Murabahah
 Deferred sale
Two concepts
 Combination of contracts.
 Contingency of contracts.
 Financing of purchasing commodities and goods from the local
markets
 Financing import and export transactions
 Financing fix assets (machines and equipments)
 Financing of working capital (purchasing feedstock used for
production)
 Financing construction and installations material purchases
 Financing purchasing of real estate (land and building)
 1-Promise stage.

6-payment of price
in different 2-Agency Contract
installments

Delivery of
Commodity of to 3-Delivery of
Customer Commodity

4-Contract Stage
 Firstly,
The client and the institution sign an over-all agreement whereby
the institution promises to sell and the client promises to buy
the commodity on an agreed ratio of profit added to the cost.

Bank Client
Agreement to
Murabaha
 Secondly,
The institution appoints the client as his agent for purchasing the
commodity on his behalf and an agreement of agency is signed
by both the parties

Bank Client
Agreement to
Murabaha
Agency
Agreement
3-Delivery
of
Commodity
 Thirdly,
The client purchases the commodity on behalf of the
institution and takes its possession as an agent of the institution,
and delivers it to the Bank. (Constructive or physically)

Transfer of Risk client Client purchases goods and

takes possession

Bank vendor
Contract Stage
 Fourthly,
The client makes an offer to purchase the commodity from the
institution, which will be accepted by institution.

Offer by client
client
Bank Client

Acceptance by Bank
 Fifthly,
The Commodity is delivered to the customer and the the
ownership as well as the risk of the commodity is transferred to
the client.

Commodity delivered
&
Transfer of Title

Bank Client
Payment of
Price in
different
Installments
 The most essential element of the transaction is that the
commodity must remain in the risk of the institution
during the period between the third and the fourth stage..

 It is also a necessary condition for the validity of Murabahah

that they purchased from a third party. The purchase of the
commodity from the client himself on a buy agreement is not
allowed in the Shariah.

 Also there must not be any prior relation b/w the

supplier and the customer
 The abovementioned procedure of the Murabahah financing is
a complex transaction which the parties involved, have
different capacities different stages .

 All these capacities must be kept in mind and must come into
operation with consequential effects each at its relevant stage
and these different capacities should never be mixed up
confused with each other.
Default Case:
 In the event of default by the buyer (client) in respect of the
payment of the purchase price on the due date, the PRICE
cannot be increased. However, if he has undertaken in the
agreement to pay an amount for a charitable purpose, he shall be
liable to pay. & that must not be credited to the income of the
institution.
 Rebates in Early Payment:

If the customer makes the payment before the due date

and there is no commitment that he would gain any
discount in the price of Murabahah. Then it is permissible
for bank to give any rebate to the client.

 Documentation charges:
The documentation charges may be charged to the both parties
 Rollover in Murabahah:
Rollover in Murabahah is not possible since each Murabahah
transaction is for a particular asset. A new Murabahah can only
be executed for the purchase of a new asset.

 Purchase Evidence:
The customer is required to submit purchase evidence and
declaration. The purchase evidence must confirm that customer
as an agent has purchase the goods after agency agreement