Shariah Parameter Reference 1 Murabahah Contract Frequently Asked by okp19506


									                  Shariah Parameter Reference 1: Murabahah Contract
                             Frequently Asked Questions

Murabahah Sale

1.   Q:     What is Murabahah sale?

     A:     Murabahah is a sale of certain goods with a disclosed cost and mark-up.

2.   Q:     What is the difference between Murabahah, Bai’ `Inah and Tawarruq?

     A:     Bai’ `Inah is a series of sales where a person sells a good to another person on
            credit and then the latter subsequently sells back the goods to the former on
            cash basis at price lower than the initial credit sale. Bai’ `Inah may also take
            effect in a series of sales where a person sells a good to another person on cash
            basis and then the latter subsequently sells back the goods to the former on
            credit at a higher price than the initial cash sale. The practice of Bai’ Bithaman
            Ajil (BBA) which involve the sell and buy back arrangement is considered as Bai’

            Tawarruq is a series of sales where a person sells a good to another person on
            credit basis and the latter sells the purchased goods on cash to another third
            party who is not the former.

Disclosure of Price

3.   Q:     Is it required to detail out cost of each item and its mark up for a Murabahah
            contract that involves number of items in one sale?

     A:     For such sale transaction, while the seller is required to disclose total cost and
            mark up, the seller has the discretion to detail out cost and mark up for each

4.   Q:   Is the supplier required to list out the details for the direct expenses mentioned in
          the invoice?

     A:   The seller is required to disclose the acquisition cost which includes direct
          expenses. However, the seller has the discretion to provide details of the direct
          expenses. Islamic banks are required to have internal control mechanism to
          ensure the acquisition cost does not include indirect expenses.

5.   Q:   Can IFI round-up the sale price for calculation purposes?

     A:   Round-up figure is permissible subject to acceptable market practices.

6.   Q:   Can direct expenses other than takaful contribution be negotiated to be charged

     A:   Only takaful contribution is allowed to be charged separately.

Ownership & Possession of Asset

7.   Q:        How to ensure constructive possession takes place when the invoice is
               already on customer’s name?

     A:        Constructive possession of the asset is evidenced through the
               documentation of wakalah contract and murabahah contract. It is
               permissible for the name of the purchase orderer (customer) who is
               appointed as an agent of the IFI to conclude the murabahah contract with
               supplier, to appear in all documents.

8.   Q:   For goods that require few months to be received from supplier, can
          Murabahah be executed at the point of ordering?

     A:   As murabahah usually involves credit sales, execution of murabahah
          contract at the point of ordering is not permissible as it leads to deferment
          of goods and price delivery (ta’jil badalain).

9.   Q:   For murabahah contract to be concluded, is it required to have full
          documentations to prove ownership of the asset by the seller?

     A:   Document evidencing ownership would suffice.

10. Q:    In murabahah transaction involving immovable asset, is memorandum of
          transfer (MOT) sufficient to attest constructive possession and would
          application of MOT implicates double stamp duty?

     A:   To date, the Bank has yet to receive any information that such matters
          attract double stamp duty. In any event, the Government recognize tax
          neutrality as the applicable policy for Islamic finance and this has been
          reflected in relevant tax legislation. Such matters should be brought to the
          attention of Working Committee on Tax Neutrality for Islamic banking &
          Takaful which has been established to address tax related issues arising
          from application of Shariah contracts.

11. Q:    In trade finance operation, purchase orderer signs purchase order
          application, the purchase undertaking and the murabahah contract. These
          documents then are submitted to IFI for acceptance of the Murabahah
          contract. Is this practice allowable under Shariah?

     A:   The practice of pre-signing the Murabahah contract is allowable provided
          that it reflect a valid Murabahah transaction in which the sequence of
          transaction is in the right order and followed through to reflect correct flow
          of ownership transfer. The Murabahah contract must be executed by both
          party and not unilaterally.

Early Settlement of Debt

12. Q:     Is penalty for pre-payment/early settlement of financing permissible by Shariah?

     A:    Shariah Advisory Council of Bank Negara Malaysia has decided that penalty for
           early settlement is not permissible as it contradicts the Islamic principle of
           encouraging people to settle payment obligation/debt as early as possible.

Purchase Undertaking

13. Q:     Other than the related actual cost incurred by the Bank for the disposal of the
           assets and the shortfall in the disposal price compared for the purchase price,
           the regulatory cost incurred by the Bank due to inventory/ asset holding (pending
           disposal of assets) shall also be compensated by the purchase orderer.

     A:     Regulatory cost shall not be compensated by purchase orderer.

14. Q:     Assuming the disposal price is just enough to cover original purchase cost of the
           asset, can the Bank request for an additional amount for compensation
           purposes to recover other indirect cost incurred, for instance manpower and time
           spent to process the application (assuming bank can properly track the time and
           efforts spent on it)?

     A:    IFI cannot make customer to compensate indirect expenses or cost.

Guarantee & Security

15. Q:     Could the right to set-off customer's funds be extended to customer's funds in
           the bank's other groups of companies?

     A:    Right to set-off customer's funds may be extended to customer's other funds
           provided that the term of the other fund allows for such action.

16. Q:   If initially securities pledged to IFI are Shariah approved shares, however in the
         later stage, the shares are declassified as non-Shariah approved shares. In such
         instance, can the bank request the customers to substitute other Shariah
         approved companies as security or is it still acceptable?

    A:   IFI may hold the securities declassified as non-Shariah compliance shares until
         its status is rectified or alternatively request for substitute.


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