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The subject of sale must be in the physical or constructive ownership of seller at the time of sale.
“ Constructive Possession” means where the buyer has not taken physical delivery of goods, but the goods are under his control. And all rights and liabilities of the goods have passed to him,i.e. the goods are at his risk.
The subject of sale should be specifically known and identified to the buyer. The subject of sale must be identified by pointing out or by detailed specification which can distinguish it from other things not sold.
The delivery of the sold commodity to the buyer should be certain and should not depend on a contingency or chance.
The Holy Quran says “And Allah has permitted trade” (2:275)
It is further mentioned“But let there be among you traffic and trade by mutual goodwill” (4:29)
According to Imam Shafi in Al-Umm: “If an individual shows another a good and says: buy this, and I will give you this much profit in it; and then the second man buys it then the purchase is valid. If the first party said: I will give you this much profit in it , but I retain an option, then he may conclude the sale or leave it.”(See Financial Transactions in Islamic Jurisprudence Vol1 Pg 361)
As for making the promise to purchase the item once the bank acquires it binding on the ultimate buyer, we may take a ruling by ‘Ibn Shabramah from the Maliki school that any promise that does not result in permitting that which is forbidden or forbidding that which is permitted is binding.
The Malikis use this principle to make the promise binding, especially if the promise leads another entity to undertake a financial obligation.
In the first Conference in Dubai (1979), it was ruled that: “This type of promise is legally binding on both parties based on the Maliki ruling, and religiously binding on both parties for all the other schools. In this regard, what is religiously binding can be made legally binding if this is beneficial and can be regulated legally.”
The second Conference in Kuwait (1983) ruled thus: “The conference determines that the mutual promises involved in murabaha sales to the one who orders the initial purchase is permitted after the bank owns and gains possession of the sold object, and then sells it to the one who ordered its purchase with the promised profit margin.
This sale is valid as long as the bank is exposed to the risk of destruction of the goods prior to delivering it to the final buyer, as well as the obligation to accept the return of the goods if a concealed defect was found. .”
Cost-plus, sale is a legally permissible contract by the testimony of the majority of jurists and companions of the Prophet (pbuh).
This type of sale satisfies all the legal requirements for sale, and it provides a valuable service in economic markets since it allows those knowledgeable of market conditions to make a profit and those without such knowledge to obtain the goods at a good price.
It was narrated that ‘Ibn Masud (RA) ruled that there was no harm in declared lump-sum or percentage profit margins.
Knowledge of the initial price: The second buyer must know the price at which the seller obtained the object of sale, since knowledge of the price is a fundamental condition for the validity of sale.
Knowledge of the profit margin: Since the profit margin is a component of the price at which the second buyer obtains the goods, knowledge of that margin is essential for knowledge of the price, which is in turn a condition of validity for the sale.
The present day Murabaha transactions are being practiced under the guidelines given by Accounting & Auditing Organization of Islamic Financial Institutions (AAOIFI) and Islamic Fiqh Academy which have representation of scholars of all Islamic Fiqhs.
In some cases, however, it may be too burdensome for the client to submit all the invoices as the number of invoices may run into hundreds.
For example, cotton purchases are generally in small quantities from various sources and hence for each Sub-Murabaha there may be too many invoices to submit. It is suggested to furnish samples of invoices along with summary of all purchases.
Narrated by Ahmad, Abu Dawud, and Al-Nasai with the wording: “The farmers during the time of the Prophet (pbuh) used to pay rent for the land in water and seeds. He (pbuh) forbade them from doing that, and ordered them to use gold and silver (money) to pay the rent”
It is impermissible to charge a rental for gold or silver coins, or for any consumable good measurable by weight or volume.
3. Two contracts into one contract is not permissible in Shariah therefore, the bank cannot have the agreement of hire and purchase into one agreement, only the bank can undertake/promise to purchase the leased asset
4. Under conventional Lease, the Lease rental starts from the date of payment by Lessor.Under Shariah , the correct way to charge rent is after delivery of the asset to the Lessee. Because rent is charged for use of the asset
Musharakah is a form of partnership (Shirkat) between two or more parties whereby each party contributes to the capital of the partnership in equal or varying proportions either to establish a new venture or share in an existing one.
The Transactions cannot be combined in a single agreement and they have to be executed independently. This is because it is a well settled rule of Islamic Jurisprudence that one transaction cannot be made a condition for another.
Instead of making the transactions a pre-condition for one another there can be one-sided promises from one party to another
Purpose: This is the main agreement that establishes the Bank’s share in the Musharakah Property.
- Both parties share
- Musharakah Property detail
2. Payment Agreement (Rent Agreement)
Purpose: This agreement is signed after Main Musharakah Agreement. Bank gives its share to the customer via this agreement.
- Rent Schedule
- Formula of calculation
3. Undertaking to Purchase Musharakah Units Purpose: This is an undertaking by the customer to purchase Bank’s Musharakah units. Components: - Normal Sale Price - Additional Unit Purchase Price 4. Undertaking to Sell Musharakah Units Purpose: This is an undertaking by the Bank to sell its Musharakah units from time to time. Components: - Normal Sale Price - Additional Unit Purchase Price Legal Documentation