Islamic Financial

Products and Processes

Ameenullah Sheikh
ameenullah.shaikh@iqra.edu.pk
Trade Financing/Comodity Financing
 Murabaha

• Islam prohibits charging fixed interest on money,

but permits charging fixed profit on sale of goods.
This clears a common misconception that charging
fixed profit is haram.
 Murabaha
Presen

• Murabaha is a particular kind of sale where

the transaction is done on a “cost plus profit”
basis i.e. the seller discloses the cost to the
buyer and adds a certain profit to it to arrive
at the final selling price.

• The distinguishing feature of Murabaha from

ordinary sale is:

- The seller discloses the cost to the buyer.

- And a known profit is added.
Conditions of Subject Matter:
1) Subject Matter of murabaha must
be existing at the time of sale.

2) Subject Matter of murabaha must

be in the ownership of the seller.

3) Subject Matter of murabaha must be in

the physical or constructive possession of the seller.
(Transfer of Risk & Reward and permission of use/ Tasrruf
are basic ingredients of Constructive Possession
Conditions of Subject Matter :
4)  Subject Matter of sale must be of a proper
value
5) Subject Matter of murabaha should not
be a thing which is not used except for
a Haram Purpose.
6) Subject Matter of Murabaha must be
Specified & Identified to the buyer.
PRICE OF MURABAHA:
 
1) The price must be fixed in Murabaha
(lump sum/by percentage)

2) The price in Murabaha may be spot

or deferred.

3) If the price is deferred in Murabaha,

the installments and due date must
be determined.
 PRICE OF MURABAHA:

4) When once the price is fixed it can not be

changed.

5) Increase in the price not allowed incase of default.

6) Fluctuation in Murabaha price is not permissible.

Expenses of Murabaha:
The direct expenses
will be added in the
cost of goods. (Cost
acquiring the
commodity like
freight and costume
duty)
• It is a contract wherein the institution, upon request by the
customer, purchases an asset from the third party(a supplier)
and resells the same to the customer either against
immediate payment or on a deferred payment basis.

• 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.
 Steps in Murabaha financing

1. Client and bank sign an agreement to enter

into Murabaha (MMFA).

Bank Client
Agreement to
Murabaha
 Steps
Presen in Murabaha financing

2. Client is appointed as agent to purchase

goods on bank’s behalf

Bank Client
Agreement to
Murabaha

Agency
Agreement
 Steps in Murabaha financing

3. Bank gives money to agent/supplier for

purchase of goods.

Bank Agreement to Client

Murabaha
Agency
Agreement
Disbursement to the agent or supplier

Supplier
 Steps in Murabaha financing

4. The agent takes possession of goods on bank’s

behalf.

Delivery
Transfer of Risk Vendor of goods

Bank Agent
 Steps in Murabaha financing

5(a). Client makes an offer to purchase the

goods from bank through a declaration.

Bank Client

Offer to
purchase
 Steps in Murabaha financing

5(b). Bank accepts the offer and sale is

concluded.

Murabaha Agreement
+
Transfer of Title

Bank Client
 Steps in Murabaha financing

6. Client pays agreed price to bank according to

an agreed schedule. Usually on a deferred
payment basis (Bai Muajjal)

Bank Client
Payment of Price
Any Questions??
THANK YOU