Al-Sadiq (A.

S) Institute of Islamic Banking, Finance & Takaful

MURABAHA -2

Presented By Jawaid Iqbal

Prepared by: Br. Ali Abbas Abidi
22 Rajub 1429, Saturday July 26, 2008

1
Transfer of Risk

2
 Transfer of Risk

Bank & Client

Goods Transitional Murabaha
Purchased Period Contract of
from Supplier
Sales
by bank
If Goods are
destroyed
then Bank is
responsible
Establishment
of Debtor and
If Goods are Creditor
destroyed Relationship
then Client is
responsible between Bank
and Client
3
Goods at Supplier : VIP Electronics

Goods Purchased by Bank

Goods are in the Custody of Bank

Goods are Destroyed

Bank Responsible

4
Goods at Supplier : VIP Electronics

Goods Purchased by Bank

Goods are in the Custody of Bank

Murabaha Contract

Goods Destroyed

Client is Responsible
5
 Before Murabaha Contract

Goods at Bank Goods at Client

Premises Premises

If Goods are If Goods are

destroyed destroyed

Bank Is Bank Is
responsible responsible

6
 After Murabaha Contract

Goods at Bank Goods at Client

Premises Premises

If Goods are If Goods are

destroyed destroyed

Client is Client is
responsible responsible

7
Risk Mitigation Tools

Before Murabaha
After Murabaha
8
 Risk Mitigation Tool in Murabaha

Before After
Murabaha Murabaha

Unilateral Purchase on Hamish Urboun

Promise of Sales or Return Jiddiyah
Buyer Basis Guarantees
Securities
Guarantee of Good Undertakings
Between Performance of
Supplier Supplier given If Client suggests
and Bank by Client name of Supplier
9
Status of Promise

10
 Difference

Promise Promise Contract

Unilateral Bilateral Bilateral

Parties are
Promisor Bound but Parties are
is bound bound
AAOFI Discourage
Bilateral Promise

Client is bound by his unilateral Promise

11
Difference between Contract & Bilateral Promise

Bilateral
Contract
Promise

Zakat is applicable Zakat is applicable

on Seller on Buyer

Inheritance rights are Inheritance rights

always reserved with are reserved with
successors of Seller successors of Buyer

Risk of Goods remain Risk of Goods

with the Seller Transfers to the Buyer
12
 Bilateral Promise

Client Bank
Promises Promises

To Buy To Sell

AAOFI Standard disallows

13
 Bilateral Promise allows

If both
If Client OR If Bank OR
Bank and Client

Has/Have Option to cancel

AAOFI Standard allows

14
Sales or Return Basis
Contract
between
Bank and Supplier

15
 Sale or Return Basis

Allowed for
Bank to Purchase

Client may refuse to buy

Risk and Hamish Jidiyahs
Client may become Mitigation are in sufficient to
Insolvent before Tool recover loss
Murabaha Contract

16
 Suppliers’
Goods Performance
Guarantee
17
 Banks

Conventional Islamic

Deals in Documents Deals in Goods

Not in Goods Risk Not in Documents
Article 4, UCP 500

True
Concept of Financing Sales and Purchases

18
Documents are matched but Goods are not as per Specification

Conventional Islamic
Banking Banking
Islamic
Client is Responsible Bank Client is not
to Goods Must responsible to Goods
Use
Risk
Client has to accept Mitigation Client refuses to accept
And Sue to Exporter Tools

Bank files a suit

against Exporter
19
 Guarantee of Good Performance of
Supplier given by Client

Useful for If Goods are not

Import as per specification

Islamic bank deals Client is responsible

in Goods not in As client is Guarantor
Documents

20
 Client’s Guarantee for Supplier’s includes

Exercise of Non In a legal

Meeting the
diligence in observance Dispute,
specifications
executing of Damage
of the Items
the contract which Claims

Results in the loss

Opportunity Cost of the Institution’s
Not included
Time & Efforts

Property
21
 Guarantee of Supplier for Good Performance

Furnish by Client

Not as In the Individual Capacity

The Purchase Orderer

The Agent of the Bank

22
 Request

When Client suggests When Client does not

the name of Supplier suggest the name of Supplier

The Bank may obtain a guarantee

The Bank has to take
regarding the good performance
the Risk of Supplier’s
by the Supplier of his contractual
Contractual Obligations
obligations towards the Bank

Risk Mitigation Tool

23
Hamish Jiddiyah
Margin of Sincerity
Security Deposits

24
 Paid by Client

Before Signifies
Murabaha Sincerity of Client
Contract For buying Goods

25
 Hamish Jiddiyah(HJ) Status and Utilization

Held by Bank If Bank

On Business After the execution
Has paid
Trust Basis Purposes Of Contract
Urboon to
Supplier
With the
Permission
Mudarba Contract
Bank deducts Of Client
Urboon from
Hamish Jiddiyah Between
Client and Bank

HJ becomes
RABUL MAL MUDARIB
Advance Installments
26
 Hamish Jiddiyah: Security Deposits

Client refuses to buy

Bank resell to other Person

New Price is New Price is same New Price is lower

above than the as was the cost of Than the Cost of
Cost of Purchase Purchase Purchase

Full Full Refund

Hamish Jiddiyah Hamish Jiddiyah Hamish Jiddiyah
is returned is returned after deducting
the actual loss
27
 If Buyer refuse to make Murabaha Contract

Murabaha Sale
Purchase Price 30,000
Rs. 25,000

Forget this
Bank Resale Amount
The Goods to More than or
third Party Equal to
25,000 Full HJ is returned to Client
If New Price
Less than Remaining amount
25,000 To be taken from HJ
28
 Collateral

Before Murabaha After Murabaha

Hamish
Jiddiyah Urboun

Security Earnest
Depsoits Money

29
 Urboun
After the Contract of Murabaha
between
Client and Bank

30
 Urboun after Murabaha

Risk Mitigation Hamish Jiddiyah Bank may ask

Tool Converts into Amount for
Urboun Security

Bank is the owner of Urboun as per Sharia

If client Defaults Urboun is not refundable

It is part of Price
31
 Delivery
from
Supplier to Bank
32
Bank can Make Murabaha Contract

When its gets

•Physical Delivery
•Constructive Delivery
•Receipt of Transporter (Bill of Lading)
•Railway Receipt/ Bilty
•Agent of Buyer gets the goods

33
 Goods with the Carrier-Transporter

Road
Sea and Air Any mean
Transport

Unless specified and mentioned

The transporter is the agent of Importer

When Exporter loads the Goods onto Carrier such

Delivery is called Constructive Delivery to Client 34
 Delivery

Constructive
Physical
Delivery to Carrier
Direct delivery to
Delivery to
Client’s agent
Client
Retain with Supplier on
the Instruction of Client
Premises of
Client Retain with Bank on
the Instruction of Client
35
Without Offer and Acceptance
No Murabaha Contract
Is Valid

36
 Promise to buy in Future

Bank acquires the goods

Ownership With the

Not with
Bank
the Buyer
No automatic
Murabaha is constituted

After 'Offer' and Offer & After 'Offer' and

'Acceptance' Acceptance 'Acceptance'
Client is required Bank
becomes Owner becomes the Seller

37
 Bank –A
Approach

Client
Supplier Approaches

Delivers Client’s
Premises

Consumes
Invalid Murabaha Goods

Client Makes
Contract
38
 Bank –A
Approach

Client
Supplier Approaches

Delivers Client’s
Premises

Client Makes
Contract
Valid Murabaha
Consumes
Goods
39
 Risk of
Buy Back
40
 Bank
Client Supplier

(2) Banks
(1) Buys goods
after
From
purchasing
sell to
Client

No Relationship of Agency SHALL BE Existing,

Client shall not Hold more than 33% in Equity
41
 Bank
(1) Client
Request
(2)
Pays
Goods

Supplier
(4) Sells
Goods
No contract (3)
of same goods Sells
shall be existing
Client Goods
Client shall not be
Holding major Shares in
Supplier’s Business
42
 Relationship between Client and Supplier

Allowed Disallowed

Debtor and Creditor

Marital For the same Goods
Relations
Supplier is the agent of Client
Blood
Client holds major share
Relations Holdings in
supplier’s business

No Relations Client and Supplier

are same person
43
 No Contract of the
Goods to be purchased
Client under Murabaha Supplier
already exist between

If exists then that that contract shall be

cancelled by both Client and Supplier

44
 Risk Mitigation
for Recovery
By adding Stipulation

45
 After Murabaha Contract

Client Refuses Client Delays in

to Pay Payment

All Period of Installments stand cancelled

The Bank asks full

remaining Amount

46
 Cancellation of Installments
And Client is bound to pay all amount at once

Expiry of Expiry of Specified

Mere Delay Grace Period Mentioned
Period in Notice

47
 Risk Mitigation Tools for Recovery

3rd Party Promissory Post

Lawful Pledge Dated
Securities Guarantee Note
Cheques

Subject Matter Investment

Pledge
Of Murabaha Account of
Asset of Client
Contract Client

Shall not be
Here Pledge may be Physical Possession En-Cashed or
discounted
Normally Pledge may be Progressive Earlier than due
date
48
Jazzakullah

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