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Sale Contract
/Murabaha .

CONTRACT IN ISLAM
CONTRACT
SUBJECT
MATTER
Specified
Quantified

CONTRACTORS

WORDING OF
CONTRACT

Non-restricted
Sane
Mature

Present
Unconditional
Non-contingent

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

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.

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 ( Mabee)
Price ( Thaman )
Possession or delivery ( Qabza )

CONTRACT ( Aqd )

Offer & Acceptance ( Ijab-o-Qobool)

Oral ( Qauli )
Implied ( hukmi )
Buyer and seller ( Mutaaquadeen ) must be
Sane
Mature
Conditions of contract ( Sharaet-e-Aqd )
sale must be non-contingent
sale must be immediate

SOLD GOOD OR SUBJECT MATTER

( Mubee )

Existing
Valuable
Usable
Capable of ownership/title
Capable of delivery/possession
Specific & Quantified
Seller must have title & risk

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.

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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BANKING 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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BANKING 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

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SCOPE OF MURABAHA
It is 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

Facility
approved

Clien
t

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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

Murabaha
Facility
Agreement

Clien
t

MOU

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

Bank

purchase
requisition

Clien
t

/Promise to the
bank.
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2-

2.

Agency stage

Client appointed as agent to purchase goods on banks behalf

Bank

Agreement to
Murabaha
Agency

Client

Agreement
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2- Agency stage
Stage Two for Murabaha financing
.

Bank gives money to supplier through clients account for purchase of

goods.

Islamic
Bank
Bank

Agreement to
Murabaha

Client
Agency
Agreement

Disbursement to
the Supplier

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3. Acquiring Possession
Stage three for Murabaha
financing
. Client purchases goods on banks
behalf and takes their possession.

Transfer of Risk

Bank

Vendor

Client
purchases
goods and
takes
possession

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.

Bank

Murabaha
Agreement
+
Transfer of Title

Client

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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)

Bank

Payment of Price

Client

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Murabaha

GENERAL MECHANICS
VENDOR

ISLAMI BAN
C

CUSTOMER

The customer approaches the Bank with

the request for financing

Agreement

The Bank purchases and receives title of

ownership from the vendor
The Bank makes payment to the vendor

The Bank transfers the title over to the

customer upon payment

The customer makes payment up-front or

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on a deferred basis

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
(under Shariah perspective)
Points to Be Considered
While Approving Credit
It is 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

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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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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

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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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AGENCY STAGE
TYPES OF AGENCY AGREEMENT
1. SPECIFIC AGENCY AGREEMENT
When the purchase of commodity
is not of
consistent nature.
2. GLOBAL AGENCY AGREEMENT
When the purchase of commodity
is of
consistent nature.
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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 46

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.
It is 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 Banks behalf mentioning the
Offer Price .(Comprising Cost plus
Banks Profit )

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BANKS 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 Banks 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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Rollover in Murabaha

Rescheduling is allowed
but repricing is not
allowed.
Rollover is also not
allowed.
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Risk Management
IN
MURABAHA

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Risk
Dimension
s Banking

Credit
Liquidity
Credit
Credit
Prising risk

Risks
Market
IslamicBanks
Banksalso
alsoface
face
Islamic
Additionalasset
assetrisk
risk
--Additional
Greaterfiduciary
fiduciaryrisks
risks
--Greater
Greaterlegal
legalrisk
risk
--Greater

Foreign Exchange
Solvency
Operational
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END OF PRESENTATION

JAZAKAMUALLAH

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