This document discusses Murabaha financing through an example between Nishat Mills Ltd. and Meezan Bank Ltd. It defines Murabaha as a sale where the seller discloses the cost and adds a known profit. It outlines the key stages and documentation of a Murabaha transaction, including the agency agreement, purchase evidence, and payment schedule. It also discusses guidelines for rollover, penalties, and monitoring to ensure compliance with Shariah principles for Islamic banking.

1. In the name of Allah the most
beneficent and the most merciful…
The lord of the world and the master
of the day of judgment…

2. Presented by :-
Presented To :-
Sir Hassan Kamran
Islamic Banking
Presentation

3. Murabaha
Banking Operations & Islamic Banking.

4. Meezan Bank

5. Vision.
Establish Islamic banking as banking of
first
choice to facilitate the implementation of
an equitable economic system,
providing a
strong foundation for establishing a fair
and
just society for mankind.

6. Mission
To be a premier Islamic bank, offering a
one-stop Shop for innovative value-
added
products and services to our customers
within the bounds of Shariah, while
optimizing the stakeholder’s value
through
an organizational culture based on
learning,
fairness, respect for individual

7. Nishat mills

8. Company Profile
Nishat Mills Limited is the flagship
company
of Nishat Group. It was established in
1951.
It is one of the most modern, largest
vertically integrated textile company in
Pakistan The Company’s total export for
the year 2011 was Rs. 36.015 billion
(US$
416 million).

9. Application of murabaha
financing
Nishat mills Ltd. VS. Meezan
Bank
Ltd.

10. MURABAHA :
 Murabaha is a particular kind of sale
and not a financing in its origin.
 Where the transaction is done on a
“cost plus profit” basis i.e. the seller
discloses the cost to the buyer and
adds a certain profit to it to arrive at
the final selling price.

11. 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

12. Features of murahaba:
 The seller discloses the cost to the
buyer.
 And a known profit is added.

13. Murabaha Documentation:
 Master murabaha financing
agreement
 Agency agreement
 Order form / draw down notice
 Declaration
 Purchase evidences
 Demand promissory note
 Payment schedule

14. Rollover in murabaha:
 Roll over in murabaha is not allowed.
 It is advisable that whenever
practicable there must be gap of 1-2
days between maturity of the previous
murabaha and disbursement of the
new one.

15. Rebate on early payments:
If the consumer makes early payment
and
there is no commitment from
theinstitution
in respect of any discount in the price of
murabaha, the institution sole
dicrection in allowing them the rebate.

16. Penalty on late payments:
The murabaha price becomes a receivable
for
the bank. Hence , any amount charged
over
and the above amount will be riba.
It is permissible to have an undertaking
from
the customer to pay an amount of money
or a
percentage of the debt to be donated to
charitable causes in the event of delay in

17. Murabaha monitoring sheet:
As per the guidelines of shariah advisor,
murabaha monitoring
mechanism(MMM)has
been implemented at MBL via PDSC
policy # 24 dated November 8, 2005
to ensure timely receipt of declaration
& purchase evidences.

18. Purpose of MMM:
 To improve the quality of murabaha
transactions,
 To reduce the gap between
disbursement and purchase evidence,
 To avoid delays in declaration and to
streamline murabaha transactions in
commercial banking, corporate and at
all branch levels

19. Applications of Murabaha:
 Purchase of raw material; for meeting
working capital needs of trade and
industry.
 Medium to long term requirements for
purchase of land, building and
equipment.
 Trade finance products including
imports, exports and bill purchase.

20. Advance payment (Hamish
Jiddiyya) :
Hamish jaddiya can be used to
minimize
our loss in case of breach of contract.
But in Islamic banking advance
payment not used to recover the cost
of funds / opportunity cost.

21. CASE OF DEFAULT :
In the case of default in Islamic banking
murabaha
the advance payment will be used to recover
the
loss and the advance payment are exceed the
remaining amount will me given to client.
In other banking systems the advance payment
used to recover the cost of funds / opportunity
cost.
But these terms is prohibited in Islam and allow
to
only recover only loss on principle amount.

22. Delay in Supply from the
Supplier.
In any case the supplier can’t supply the
goods at specific time then the
murabaha agreement will be
canceled and the customer not liable
to purchase the goods from bank.

23. STAGES OF MURABAHA:
 Promise Stage
 Agency Stage
 Acquiring Possession
 Execution of Murabaha
 After Execution of Murabaha

24. Promise stage
Client approach the bank for facility through
Murabaha.
Client and bank signs an agreement to enter into
Murabaha.
Client submits the purchase requisition to the bank.
Client
Bank

25. Agency stage
Client appointed as agent to purchase goods on
bank’s behalf.
Bank gives money to supplier through client’s account for
purchase of goods. Disbursement to supplier
Bank Client
Agency agreement

26. Continued.
Disbursement to supplier
Bank Client
Agreement to murabaha
Agency agreement

27. Acquiring Possession
Client purchase goods on bank’s behalf
and
takes their possession.
Transfer of risk Vender Client purchase
goods and
take
possession.
Bank Client

28. Execution of murabaha
Client makes an offer to purchase the
goods from bank
Bank Client
Offer to purchase

29. Continued.
Bank accepts the offer and sale is
concluded. Bank Murabaha agreement + transfer
of title Client
Client pays agreed price to bank according
to
an Agreed schedule.
Bank Client
Payment of price

31. Questions