MURABAHAH

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MURABAHAH Powered By Docstoc
					MAHYUDDIN KHALID      emkay@salam.uitm.edu.my
                             CONTENT
                DEFINITION
  DEFINITION
                EVIDENCE
   EVIDENCES    PILLARS
                CONDITION OF MURABAHAH
     PILLARS
                CONDITION OF PROFITS
  CONDITION
                APPLICATION OF MURABAHAH

      ISSUES


APPLICATIONS




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                                       DEFINITION
                Literally:
  DEFINITION       From word al-ribh (‫ )الـربـح‬which means increase in capital or
                    profit of trading
   EVIDENCES    Technically
                   Sale in which the mark up is disclosed to the purchaser as per
     PILLARS
                    the seller’s purchase price for a trust-sale for a certain specific
                    asset.
                Murabahah is a type of contract, a form of sale, where
  CONDITION
                 the seller expressly mentions the cost of the sold
                 commodity he has incurred, and sells it to another
      ISSUES     person (the buyer) by adding some profit or mark-up
                 thereon.
APPLICATIONS    Mechanism has to be conducted with complete
                 sincerity/trust by the seller/financier by stating the cost
                 price of the purchase and the total profit incurred clearly
                 and truthfully. Hence, a sale based on trust (amanah).
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                                  EVIDENCES
                Al-murabahah is a legitimate contract in Islam.
  DEFINITION
                Majority of fuqaha comprising the sahabah
   EVIDENCES
                 (companion of the prophet), the tabien (followers of
                 the sahabah) , and imam of the mazhab considered
     PILLARS     al-Murabahah as a permissible contract based on
                 rukhsah principle.
  CONDITION     Al-Quran

      ISSUES


APPLICATIONS




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                                   EVIDENCES
                Hadith
  DEFINITION
                  Some scholars made murabahah analogous to a form of
                   sale called Tawliyyah (sale at purchase price without
   EVIDENCES
                   making profit)
                  It was reported that when Prophet (s.a.w) was
     PILLARS
                   preparing for hijrah to Madinah, Abu Bakar bought 2
                   camels for the journey. The Prophet (s.a.w) said to Abu
  CONDITION
                   Bakar: Sell to me (at cost without profit) one of them.
                   Abu Bakar said: It is yours for nothing. The Prophet
      ISSUES       (s.a.w) said: I would not take it without price.

APPLICATIONS




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                        PILLARS OF AL-MURABAHAH
               1.   Seller
  DEFINITION
               2.   Buyer
   EVIDENCES   3.   Merchandise or goods
               4.   Price
     PILLARS
               5.   Sighah: Offer (Ijab) and Acceptance (Qabul)
  CONDITION


      ISSUES


APPLICATIONS




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                         FLOWS OF AL-MURABAHAH

  DEFINITION
                                                                Payment of purchase price
                     Payment of purchase price                  + Premium
   EVIDENCES


     PILLARS
               Suppliers of
                 Goods
                                                 Islamic Bank                          Customer
  CONDITION


      ISSUES

                              Sale of asset                            Sale of asset
APPLICATIONS




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                   CONDITIONS OF AL-MURABAHAH
                5 important elements for condition of al-
  DEFINITION
                  murabahah:
   EVIDENCES
               1. Product and selling price
               2. Contracting parties
     PILLARS   3. Offer and acceptance
               4. No riba trading shall be involved
  CONDITION
               5. The initial contract must be valid
      ISSUES


APPLICATIONS




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                    CONDITION OF AL-MURABAHAH
               1. Product and selling price
  DEFINITION
                  Product must be clearly defined including its type, quantity
                   and other descriptions.
   EVIDENCES
                  Selling price- its cost and profit must also be disclosed clearly
                   and truthfully.
     PILLARS      Act of concealing cost price and/or margin of profit render
                   transaction null and void.
  CONDITION
               2. Contracting parties
                  Seller/ financier – responsible for supplying the product
      ISSUES       ordered by the buyer.
                  Buyer/ customer – obligated to pay for the product he
APPLICATIONS       purchased according to agreed terms of the agreement.
                  Both must be adults, rational, intelligent and can be held
                   accountable.

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                      CONDITION OF AL-MURABAHAH
                3. Offer and acceptance
  DEFINITION        It shall contain the two important elements mentioned i.e..
                     Cost price and rate of profit.
                    The original price must be fungible i.e.. The price at which the
   EVIDENCES         seller obtained the goods must be measured by weight,
                     volume or number of homogeneous goods.
     PILLARS    4. No riba trading shall be involved.
                    Products traded cannot be paid by barter system from ribawi
                     items prohibited by the Prophet (s.a.w)
  CONDITION            i.e.. Gold for gold, silver for silver, wheat for wheat, flour for
                        flour, dates for dates and salt for salt and barley for barley
                        unless weight, measurement and the calculations are equal.
       ISSUES
                    Also forbidden egg. Selling 100kg of good flour at the price of
                     120kg of sub quality flour – constitutes riba.
APPLICATIONS    5. The initial contract must be valid.
                    The traded item or property must be lawfully owned by the
                     seller according to Shariah requirements.


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                          CONDITIONS OF PROFIT
                 The amount of profit charged can be in several
  DEFINITION
                  form:
                  1. Ratio : Charge RM100 for every RM1000
   EVIDENCES
                  2. Percentage   : Charge 15% profit from cost
     PILLARS      3. Fixed amount : Charge fixed amount of money
                 Minimum amount of profit recommended is the
  CONDITION       amount that can sufficiently cover payment of
                  business zakat (2.5%) and other expenses bear by
       ISSUES     the trader
                 No limit to the amount of profit the traders can
APPLICATIONS
                  legitimately charge the customers since no evidence
                  that specifies any amount permitted for the traders
                  to do so.
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                   NON-SPECIFICATION OF PROFIT RATE IN TRADE

                 Reason to the non-specification of amount of profit in trade:
  DEFINITION       1.   Limitation of profit rate allowable is something against the rule
                        of fair and justice
                   2.   Differences between types of goods that have fast circulation in
   EVIDENCES
                        nature compared to product that have rather slow circulation or
                        slow demand; hence profit rate for the former should be
     PILLARS            different from the latter
                   3.   Differences between traders sell product in small quantity than
                        those sell massive amount of product
  CONDITION
                   4.   Differences between traders deal in cash compared to those that
                        can accept credit or deferred payment
       ISSUES      5.   Differences between goods that considered necessity
                        (dharuriyyah) compared to complementary (hajiyyah) and
                        luxury (kamiliyyah) goods. Necessity goods should be charge
APPLICATIONS            lower profit as it is needed item.
                   6.   Differences between traders that easily acquire their product
                        from those that can only acquired it through difficult process.
                        Or traders that sell raw product compared to modified product.

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                    ISSUES IN MURABAHAH CONTRACT
                 Murabahah is trust based contract and everything
  DEFINITION
                   should be disclosed including cost price and mode of
                   payment. There are several issues related to murabahah:
   EVIDENCES
                1. Rebate in the event of default
                    Issues is whether the bank must give rebate to the customer
     PILLARS
                     in case of default or to give early settlement or not.
                2. Disclosure of cost price
  CONDITION
                    The seller obliged to disclose the actual cost; if the exact cost
                     cannot be ascertained or unknown, it is impossible to have
       ISSUES        murabahah contract
                3. Use of the interest rate as a benchmark
APPLICATIONS
                    Many IFI do murabahah financing to determine profit ot
                     mark up on the basis of current interest rate using
                     conventional interest rate benchmark or rating

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                                  APPLICATION
                 Islamic financial institutions aim to make use of bay
  DEFINITION
                  al-Murabahah in circumstances where they will
                  purchase raw materials, goods or equipment etc.
   EVIDENCES
                  and sell them to a client at cost, plus a negotiated
     PILLARS
                  profit margin to be paid normally by installments.
                 Among others applications of contract of
  CONDITION       murabahah in Islamic banking are:
                   Murabahah financing
       ISSUES      Bank’s treasury product through murabahah
                    commodity
APPLICATIONS       Issuance of sukuk murabahah
                   International trade financing


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                           MODERN APPLICATION
                 Tri-partied Murabahah
  DEFINITION
                   Based on Murabahah lil-amir bisshira (Murabahah to
                    the purchase order) concept.
   EVIDENCES
                   Widely applicable because used as one of financing
                    tools by Islamic banks worldwide.
     PILLARS
                   Murabahah to the purchase orderer (MPO) for a pre-
                    agreed selling price, which includes a pre-agreed profit
  CONDITION
                    mark-up over its cost price, this having been specified
                    in the customer's promise to purchase. The payment is
       ISSUES
                    payable within a fixed future date in lump sum of by
                    fixed installments
APPLICATIONS
                   It is one of the usual practicalities adopted by the
                    Islamic banks in Malaysia for assets like car, house and
                    etc.

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                    TRI-PARTIED MURABAHAH

  DEFINITION

                                Islamic Bank
   EVIDENCES


     PILLARS

                2           4                                3
  CONDITION


       ISSUES


APPLICATIONS    Customers         1            Real Estate Agent/ Car Agent




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                           MODERN APPLICATION
                 Sukuk Murabahah
  DEFINITION
                   Sukuk defined as trust certificate or participation
                    securities which grant the investor a share of an asset
   EVIDENCES
                    along with the cash flows and risk commensurate with
                    such ownership.
     PILLARS
                   Sukuk holder are entitled to shared in the revenues
                    generated by the sukuk assets and proceeds of the
  CONDITION
                    realization of the sukuk assets.

       ISSUES


APPLICATIONS




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                                     SUKUK MURABAHAH
                                                         Sell
                                                    3
  DEFINITION
                                          Sell
                                           1
   EVIDENCES
                    Investor            Murabahah Sukuk                   SPV
                                                                4
     PILLARS    Primary Subscriber                                     Sukuk Issuer

                                           5
                                                 Proceed Payment
  CONDITION


       ISSUES                  Sell                                              2
                        6   Murabahah
                             Sukuk
APPLICATIONS


                                                                    Company In Need of
                Secondary Market
                                                                         Capital
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                END OF CHAPTER

  DEFINITION


   EVIDENCES


     PILLARS


  CONDITION          
       ISSUES


APPLICATIONS




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