Dr.

Sanaullah mahmood
Asst. Professor
Sale Contract /Murabaha
 CONTRACT IN ISLAM

CONTRACT

SUBJECT CONTRACTORS WORDING OF

MATTER CONTRACT

•Non-restricted •Present
•Specified
•Sane •Unconditional
•Quantified
•Mature •Non-contingent

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 Law of Contract
 Islamic Contract: It is connection
between the offer and the acceptance in
a manner that results the proper affects.
 Offer
 Acceptance
 Subject matter

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 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.

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 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 )

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 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

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 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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MURABAHA
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
Murabaha & 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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 Bank MURABAHA
It 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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 FINANCIAL 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
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
Itis 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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 1- Promise stage
Stage One (a) for
Murabaha financing
. Client approach the Bank for facility through Murabaha.
1

Bank Client
Facility
approved

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 1- Promise stage
Stage One (b) for
Murabaha financing
. Client and Bank sign an agreement to enter into Murabaha.
1

Bank Client
Murabaha
Facility
Agreement
MOU

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 1- Promise stage
Stage One (c) for
Murabaha financing
. Client submit the purchase requisition to the Bank.

Bank Client
purchase
requisition
/Promise to the
Bank.
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2- Agency stage

2. Client appointed as agent to

purchase goods on Bank’s behalf

Bank Client
Agreement to
Murabaha
Agency
Agreement

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2- Agency stage

Stage Two for Murabaha

financing
. Bank gives money to supplier
through client’s account for
purchase of goods.
Islamic Agreement to
Bank Murabaha Client
Bank
Agency
Agreement

Disbursement to the
Supplier 21
 3. Acquiring Possession
Stage three for Murabaha
financing
. Client purchases goods on Bank’s
behalf and takes their possession.
Client purchases
goods and takes
Transfer of Risk Vendor possession

Bank Client

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 4. Execution of Murabaha
Stage four (a) for Murabaha
financing
. Client makes an offer to
purchase the goods from Bank.

Bank Client

Offer to
purchase

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4. Execution of Murabaha
Stage four (b) for
Murabaha financing
. Bank accepts the offer and

sale is concluded.

Murabaha
Agreement
+
Client
Bank Transfer of Title

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 4. Execution of Murabaha

Stage four (b) for Murabaha financing

. Client pays agreed price to Bank

according to an agreed schedule.

Usually on a deferred payment basis
(Bai Muajjal)

Payment of Price
Client
Bank

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 Murabaha
GENERAL MECHANICS

VENDOR Bank Agreement CUSTOMER

1. The customer approaches the Bank with the

request for financing
2. The Bank purchases and receives title of
ownership from the vendor
3. The Bank makes payment to the vendor
4. The Bank transfers the title over to the customer
upon payment
5. The customer makes payment up-front or on a
deferred basis 26
 Murabaha
Murabaha Agreement

Plain Murabaha Agency Agreement

Order Form

Purchase

Agent A/C Credit

Payment of Purchase Price
Supplier – DD/PO

Possession

Offer & Acceptance

Payment of Murabaha Price

 Different capacities at different steps
Master Murabaha Agreement
Agency Agreement
Purchase
Payment of Purchase Price
Offer & Acceptance
Payment of Murabaha Price
Promise to purchase and
promise to sell
Relation of principle and
agent
Relation between the bank
and the supplier is that of a
buyer and seller
Relation of buyer and
seller comes into operation
between the bank and the
client
Relation between bank and
client is that of debater and
creditor
STAGES OF
MURABAHA
1. Promise Stage

2. Agency Stage

3. Acquiring Possession

4. 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 APPROVAL

Points to Be Considered While

Approving Credit

Itis 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 or his agent .
In this manner the transaction can be
saved from 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
Murabaha Price

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 SECURITIES IN MURABAHA
The institution may ask the customer to
furnish a security to its satisfaction for
prompt payment of the Deferred Murabaha
price.

 It is also permissible that the sold Asset(s)

itself is given to the seller as a security.

 It is preferable not to take Interest bearing

instruments as securities.
 SECURITIES IN MURABAHA
 Bank can obtain any of the following
security from its Customer client
depending upon the nature of credit
facility, amount of facility and credibility
of the customer.
 HYPOTHECATION OF ASSETS
 PLEDGE OF GOODS AND/OR MARKETABLE
SECURITIES.
 LIEN ON DEPOSITS.
 MORTGAGE ON IMMOVABLE PROPERTIES.
 BANK GUARANTEES.
 PERSONEL GUARANTEES.
STAGES OF MURABAHA

PRIOMISE STAGE
C- Purchase Requisition

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 C- Purchase 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
D- Promise 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
G- PAYMENT OF MURABAHA Goods

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 G- PAYMENT OF
MURABAHA 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 MURABAHA

2-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 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 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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STAGES OF MURABAHA

3-ACQUIRING POSSESION

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Acquisition Of Title &
Possession of The Asset
1-Institution must take actual or
constructive possession of the
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.
Itis advisable that Bank should
appoint one person for physical
inspection .Importance of Physical
Inspection

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 STAGES OF
MURABAHA

4- EXECUTION OF
MURABAHA

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Actual Murabaha
Sale

OFFER & 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 & Seller

comes into operation between the
institution & the client.
 Since the sale is effected on deferred
payment basis, the relation of Debtor and
Creditor also emerges between them
simultaneously.

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ISSUES IN MURABAHA

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 AFTER EXECUTION OF
MURABAHA
CASE OF DEFAULT

 In the case of default by the buyer in the payment of price at

the due date, the price cannot be increased.
 However if he has undertaken, in the agreement to pay
certain amount for a charitable purpose, he shall be liable to
pay the amount undertaken by him.
 But this recovered amount from the buyer will not be
considered penalty nor compensation, therefore it will not
account to institutions income.
 Institution is bound to spend it for a charitable purpose on
behalf of the buyer.
 ISSUES IN MURABAHA
Rebate in Early Payment
Rebate on Early Payments
It is prohibited by Shariah Standards to give
Rebate to the client on early payment as under
Murabaha the price is fixed.
Rollover in Murabaha
Rescheduling is allowed but repricing is not
allowed.
Rollover is also not allowed.
END OF PRESENTATION

JAZAKAMUALLAH

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