Mourabaha

Murabaha is one of the most widely used modes of finance by the Islamic banks. It is suitable for partial financing to the investment activities of the customers, in industry, trade or others. It enables the customer/investor to obtain finished goods, raw material, machines or equipment from the local market or through import.

Definition:

Murabaha sale is one kind of absolute sale (asset for price), which is divided into four kinds in respect to price:

* Bargain Sale:
It is selling the commodity for agreed upon price irrespective of its purchase price.

* Tawlia Sale (Respective sale):
It is selling the commodity for its purchase price without addition or discount.

* Discount Sale:
It is selling the commodity for its purchase price with a certain discount.

Murabaha Sale:
It is selling the commodity for the purchase price plus a certain profit margin agreed upon. This margin can be a percentage of the purchase price or a lump sum.

These last three are called "Amana (honesty) Sales".

Murabaha Sale is divided into two types:

Ordinary Murabaha Sale:
There are two parties to it, the seller and the buyer. The seller is an ordinary trader who buys a commodity without depending on a prior promise of purchase, then he displays it for Murabaha sale for a price and a profit to be agreed upon.

Murabaha Sale connected with a promise:
There are three parties to it. The seller, the buyer and the bank as an intermediary trader between the buyer and the seller. The bank here does not purchase unless the buyer specifies its desire and a prior outstanding promise to purchase.

The mode of Murabaha sale connected to a promise is used by the Islamic banks which undertake the purchase of commodities according to the specifications requested by the customer and then resell them on Murabaha to the one who promised to buy for its cost price plus a margin of profit agreed upon previously by the two parties.

There are different forms to the application of Murabaha sale connected to a promise of purchase. Some of these forms are determined by whether the promise is binding or not. Other forms are determined by how the bank receives the commodity in the case of the first sale. Should the bank receive the commodity directly or through one of its agents or should it authorize the buyer to receive the commodity.

The Practical Steps of the Murabaha Sale

1. The purchaser determines its needs The purchaser: determines the specifications of the commodity he wants and requests the seller to determine the price.

The seller: sends a quotation valid for a certain period.

2. Signing a promise to purchase agreement The purchaser: promises to buy the commodity from the bank on Murabaha sale for the cost of the commodity plus the agreed upon profit.

The bank: studies the request and determines the conditions and securities for approval.

3. The first sale contract
The bank: notifies the purchaser of its approval of purchasing the commodity. The bank may pay the price immediately or as per the agreement.

The seller: expresses its approval to the sale and sends the invoice.

4. Delivery and receipt of the commodity
The bank: authorizes the beneficiary to receive the commodity.

The seller: sends the commodity to the place of delivery agreed upon.

The Purchaser: undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.

The Evidence of Legality

1. The legality of Murabaha sale is (obtained) obvious from:
It is no crime in you
If you seek of the bounty
of your Lord

Al-Baqara 198

That is because Murabaha represents looking for more. It is also subsumed under the general rule that legalizes sale Allah sayeth "Allah hath permitted trade".

2. The Prophet (PBUH) permitted the sale of the commodity for more than its purchase price. He said: "if the two commodities are different, buy and sell as you wish.

3. The consensus of the Ummah on the permissibility of the Murabaha sale. The Kassani has pointed out that the people inherited these kinds of sales (Murabaha and other sales) throughout the generations and ages without any protests of non acceptance.

4. The Fatwa of the second conference of the Islamic bank: "The promise in the Murabaha sale to he who orders the purchase " is legally permissible after owning and possessing the commodity, only then it is permissible to sell it to the purchaser who requested it for the price specified and mentioned in the previous mutual promise agreement as long as the liability of damage before delivery and the consequences of a return for unseen defect is on the bank.

As to whether the promise is binding to the buyer, the bank or both, it better secures the interests of all parties, the bank and the customer, to have the promise as binding. It is legally acceptable and it is up to each Islamic bank to take either opinion according to what its committee of legal observers decide."