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    Assignment On Murabahah

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    jazi_4u
    This document discusses the Islamic financing structure of Murabahah. Murabahah allows for the sale of an asset for a deferred price that includes a profit margin, and is the most common form of Islamic financing. Key requirements for a Murabahah contract include the bank taking ownership of the asset before selling to the customer, full disclosure of costs and profits, and fixed sale prices. The document outlines the typical steps of a Murabahah transaction and provides examples of its applications like house and car financing.

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    Assignment On Murabahah

    Uploaded by

    jazi_4u
    1K views4 pages
    This document discusses the Islamic financing structure of Murabahah. Murabahah allows for the sale of an asset for a deferred price that includes a profit margin, and is the most common form of Islamic financing. Key requirements for a Murabahah contract include the bank taking ownership of the asset before selling to the customer, full disclosure of costs and profits, and fixed sale prices. The document outlines the typical steps of a Murabahah transaction and provides examples of its applications like house and car financing.

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    Assignment on Murabahah

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    This document discusses the Islamic financing structure of Murabahah. Murabahah allows for the sale of an asset for a deferred price that includes a profit margin, and is the most common form of Islamic financing. Key requirements for a Murabahah contract include the bank taking ownership of the asset before selling to the customer, full disclosure of costs and profits, and fixed sale prices. The document outlines the typical steps of a Murabahah transaction and provides examples of its applications like house and car financing.

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    Download as doc, pdf, or txt
    1K views4 pages

    Assignment On Murabahah

    Uploaded by

    jazi_4u
    This document discusses the Islamic financing structure of Murabahah. Murabahah allows for the sale of an asset for a deferred price that includes a profit margin, and is the most common form of Islamic financing. Key requirements for a Murabahah contract include the bank taking ownership of the asset before selling to the customer, full disclosure of costs and profits, and fixed sale prices. The document outlines the typical steps of a Murabahah transaction and provides examples of its applications like house and car financing.

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    Download as doc, pdf, or txt
    of 4

    Islamic Law of Business

    Transactions

    Assignment on Murabahah

    Submitte To:
    Sir Hasnain Ashraf

    Submitted By:

    Muhammad Arbaz Ashraf (4327)

    Class:
    MBA (22) B

    Date: Friday April 29, 2011


    MURABAHAH:
    The Quran declares sales and purchases of mal (assets) for a profit to be
    lawful. A murabahah is a sale on a cost-plus basis where payment of the
    price (including the mark-up) is deferred to a later date. Murabahah is the
    most popular and most common mode of Islamic inancing. It is also known as
    Mark up or Cost plus financing. The word Murabahah is derived from the
    Arabic word Ribh that means profit. Originally, Murabahah was a contract of
    sale in which a commodity is sold on profit. The seller is obliged to tell the
    buyer his cost price and the profit he is making. Murabahah sale which is the
    sate of a commodity for the price at which the seller has purchased it, with
    the addition of stated profit known to both the seller and buyer. In short, it is
    a cost-plus-profit sale in which the profit is expressly disclosed by the seller.
    if a person sells a commodity for a lump sum price or installment basis
    without reference to the cost, this is not murabahah, even though he is
    earning some profit on his cost because the sale is not based on a 'cost-plus'
    concept. In this case, the sale is called musawamah. Due to specialty of
    murabahah, it has been considered by the jurist as a sale based on trust.

    Murabahah in Financing:
    In financing, murabahah is used as a form of a sales contract in which the
    financial institution or investors buy an asset and then later sell it to the
    "borrower" at a marked up price, which includes a profit component.
    Payments are made in installments, either on a deferred basis or through
    upfront payment with deferred delivery. Murabahah instruments usually
    supply only short-term financing.
    Some observers see this mode of Islamic finance to be very close to a
    conventional interest-based lending operation. However, a major difference
    between murabahah and interest-based lending is that the mark-up in
    murabahah is for the services the bank provides (for example, seeking and
    purchasing the required goods at the best price) and the mark-up is not
    stipulated in terms of a time period. Thus, if the client fails to make a
    deferred payment on time, the mark-up does not increase from the agreed
    price owing to delay. Also the bank owns the goods between the two sales,
    which mean it carries the associated risks.
    Subject of Murabahah:
    The assets which are the subject of the sale must fulfill, among other things,
    the following requirements:
    ♣ The subject of sale must exist and be in the ownership (physical or
    constructive) of the bank at the time of sale. In other words, the
    second contract must "follow" the first contract. This risk bearing by
    the bank - even if for a short or fleeting time period - legitimizes banks'
    profits under Shari'ah as distinct from prohibited riba.
    ♣ They must be something of value that is classified as property in fiqh
    (Islamic jurisprudence) and must not be forbidden commodities, such
    as alcohol, pork etc.

    Conditions for Murabahah Contract:


    ♣ Goods to be traded should be real, but not necessarily tangible goods.
    ♣ Being a sale transaction, it is essential that the commodities, which are
    the subject of sale in a Murabahah transaction, must exist, owned by
    the Islamic Bank and in his physical or constructive possession.
    ♣ An offer and acceptance, which will include certainty of price, place of
    delivery, and date on which the price, if deferred, will be paid.
    ♣ Once the sale transaction has been concluded, the selling price
    determined cannot be changed.
    ♣ Buy-back arrangement is prohibited. Therefore, commodities already
    owned by the client cannot become the subject of a Murabahah
    transaction between him and Islamic Financial Institution.

    The Principal Steps of a Murabahah Transaction:


    a) The client indicates an interest in purchasing a particular asset from
    the bank for a certain price (a combination of cost price plus profit) at
    a certain time.
    b) The client identifies the vendor, selects the goods and advises its
    particulars, including the vendor's name and its cost price to the bank
    in writing. Often the bank will appoint the client as its wakil (agent) to
    acquire the asset on the bank's behalf.
    c) The bank acquires the asset and offers to sell it to the client. The
    vendor will typically make delivery of the asset to the client (as the
    bank's agent). Delivery need not be physical; it can also be
    constructive.
    d) The agency contract comes to an end. The client accepts the offer and
    the bank immediately sells the asset to the client, with payment due
    on the agreed date in the future.

    Applications of Murabahah:
    • Murabahah transaction is the simplest from of an Islamic Financial
    Transaction. Murabahah can be used to finance the purchase of any
    assets which is recognized as Mal-e-Mutaqawam (Valuable) under
    Shariah.
    • A wide range of customer needs can be catered through financing
    purchase of different assets by the customers.
    • This is used in: Import finance, Export finance, House financing, Car
    financing, working capital financing, etc.

    Conclusion
     Murabahah transaction is the simplest from of an Islamic Financial
    Transaction.

     Murabahah can be used to finance the purchase of any assets which is


    recognized as Mal-e-Mutaqawam (Valuable) under Shariah.

     A wide range of customer needs can be catered through financing


    purchase of different assets by the customers.

     Murabahah transaction is sensitive transactions and requires extreme


    care in execution.

     A small mistake at any stage may convert Murabahah into an interest


    based loan.

     It is the responsibility of each one of us to ensure that our Murabahahs


    are executed in the best manner and the income derived is Halal in
    true letter and spirit.

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