Murabahah

It is a contract between a buyer and a seller under which the later first purchases
the goods at the request of the former i.e., customer and then sells it to same
customer after adding profit.

Murabah Sale Price = Cost + Expenses incurred + Agreed Profit

Murabahah

Defination
A contract between a buyer and a seller under which the later first purchases the
goods at the request of the former i.e., customer and then sells it to the same
customer after adding profit.

Parties in Murabahah
Buyer Bank’s Customer
Seller Bank
Appointment of customer as agent of the bank (Foreign Transactions) /
Agent
common broker (for Local Transactions).

Murabahah Sale Price

Cost + Expenses incurred + Agreed Profit

Mode of Repayment

Immediately in cash
On mutually agreed future date
Spot Murabahah (Import Related Transactions)
Deferred Sale Murabahah

Types of Murabahah

DOMESTIC INTERNATIONAL
(Local Purchases) (emerging from SLC)

Murabahah General, for purchase of cotton or any Spot Murabahah (Cash

other commodity on deferred payment basis Retirement)
Deferred Payment Murabahah
a) Pledge of Imported Goods
b) Trust Receipt
c) Ship Breaking

Common Features

Request of customer for purchases / import of specific goods.

Appointment of customer as agent of the bank (Foreign Transactions) / common

broker (for Local Transactions).

The bank after taking possession of goods and establishing its ownership, shall
deliver the same or documents of title thereof to the customer on the basis of
offer and acceptance.

Price / profit once fixed cannot be changed either on premature or overdue

repayment.

Repayment period once fixed cannot be extended. Rollover of liabilities not

permissible by Sharia. Similarly, goods cannot be repurchased against which
Murabahah already allowed / adjusted.
 All costs / charges to be incurred pre / post Murabahah execution, to be
determined, calculated earlier and included in Murabahah Selling Price.

Custom duties to be either paid in full by bank or customer. If paid by the bank,
it shall be part of Murabahah Selling Price.

Appropriate collateral / securities can be obtained as per mutual consent.

Insurance to continue till Takaful (Islamic Insurance) is available in Pakistan.

Features of Murabaha and Leasing

Introduction

Most of the Islamic financial institutions, including the Islamic banks and the mudarabas (joint profit/ loss
sharing Investment ventures) floated in Pakistan by a large number of mudarabah companies, are working
today on the basis of murabaha and leasing. They are financing trade and industry by using these two
instruments as Islamic modes of financing.

Looking at the origin of the transactions of murabaha and leasing, they are not the modes of financing in
the strict sense of term as recognizes in the contemporary usage of the business community. Originally,
they were transactions of general trade and not financing transactions.

However, due to certain difficulties in applying the real Islamic modes of financing (mudarabah and
musharaka), in present circumstances the contemporary scholars of Shari'ah have allowed the use of
murabaha and leasing as modes of finance, subject to certain conditions. The se conditions are necessary
for making these modes of finance acceptable to Shariah, and unless these conditions are fulfilled the
transactions cannot be held as lawful in Shariah.

Whether or not the present Islamic financial instruments are observing the prescribed conditions is a
question of concern for every Muslim who transacts with them in the hope that he will not involve himself
in an un-Islamic business activity. Despite the growing number of such institutions, no system has yet
developed to examine n detail their activities from this point of view. The personnel employed in these
institutions comprise mostly of persons educated and trained in the traditional financial system based on
interest. They are not sufficiently familiar with the Islamic concepts and principles of business and despite
their honesty, the possibility of mistakes and errors cannot be rules out.

Although there are some Religious boards which supervise the overall activities of some of these
institutions, their function is limited to examining their model agreements and responding to specific
questions referred to them by the management. They do not and perhaps cannot, examine the actual
practice in individual transactions.

Therefore, the smooth functioning of Islamic financial institutions in accordance with the Shariah requires
firstly the orientation of their personnel with a view to equipping them with the basic Islamic concepts of
business and secondly a systematic method of auditing them from the Shariah point of view.