1. Murabaha is an Islamic financing technique where a financier purchases an asset for a customer and sells it to them at an agreed upon higher price, incorporating a disclosed profit amount. 2. It involves the customer first requesting the purchase from the financier. The financier then appoints the customer as an agent to identify and procure the asset. Once purchased, ownership is transferred to the financier before being sold to the customer. 3. The transaction involves two separate contracts - one where the customer acts as the financier's agent in purchasing the asset, and another where the customer acts as buyer and the financier as seller, with ownership transferring upon sale. This ensures risks are properly assumed under

1. Basic principles of Islamic finance :
1- Prohibition of Riba:
The practice of charging financial interest or a premium in excess of the
principal amount of the loan.
2-Risk sharing:
Interest is prohibited and owner of funds become investors instead of
creditors.The provider of capital and entrepreneur shares business
risks and shares profits and loss according to the ratio of investment
and participation by way of their Capital or Skill.
3-Prohibition of speculative behavior:
An Islamic financial system discourages exhibition of wealth and
prohibits transactions featuring extreme uncertainties, gambling,
and risks
4-Transparency of contracts:
Disclose all obligations and information regarding the contracts
undertake

2. Basic principles of Islamic financial :
5-Shariah Approved Activities
Sharia’h qualifies businesses are allowed (alcohol, gambling and
casinos) are not allowed
6- Prohibition of Gharar
Gharar is variously defined in English as 'uncertainty' or 'deceptive
uncertainty'.The Qur'an uses the word "al-gharūr" to mean "deceptive".
A Gharar transaction occurs where one party can only benefit by the
other's loss, under conditions of uncertainty.
Commercial insurance is given as an example of this, since either the
insured pays a premium and receives no counter value, or the insurer
pays out much more on a claim than was received by way of premium.
Example Of Gharar:
1-Selling goods that the seller is unable to deliver
2-Selling known or unknown goods against an unknown price
3-Selling goods without proper description
4-Selling goods without specifying the price

3. ExampleOf Gharar:
5- Making a contract conditional on an unknown event
6-Selling goods on the basis of false description
7-Selling goods without allowing buyer to properly examine the goods
8-Gambling is a form of Gharar because the gambler is ignorant of the
result of his gamble

4. Towards achieving the objectives of Shari’ah (Maqasid al-Shari’ah)

High ethical values - justice, fairness, trust, honesty and integrity

Protection of religion, life, lineage, intellect and wealth
More equitable distribution of wealth
1-Materiality andValidity ofTransactions
Economically productive underlying activities
Avoidance of interest-based transactions
No involvement in illegal and unethical
activities
Genuine trade and business transactions
Avoidance of speculative transactions
EmbeddedGovernance
2-Mutuality of Risk Sharing
Entitlement of protitcontingent upon risk
taking
Honouring both substance and form of
contract
Disclosure &Transparency

5. 1- Modarba (Riba Free Mode Of Financing)
2-Mosharika(Trade Financing)
3-Morabha (Equity Participation orVenture Financing
4-Ijarah (Asset Financing)

6. 3-Morabha (Equity Participation orVenture Financing :
Definition:
Morabaha is a contract of sale in which a
commodity is sold on profit.The seller
tells the buyer his cost price as well as his
profit he is adding to the cost.

7. Parties Of Murabaha Contract:
1-Finacial Institution (Rab-Ul-Maal) i.e Meezan Bank etc.
2-Murahib (who influences the Rab-Ul-Maal to buy the goods)
3- Muqqddam (The agent may be hired by the Rab-Ul-Maal)
4-The Supplier (who is directly approached by the Rab-Ul-Maal)

8. 3-Morabha (Equity Participation orVenture Financing :
1- Morabaha is a financing technique that involves a request
by the Morahib (Worker) to the financier (Rab-ul-Maal)
for the purchase of a certain goods or equipment or Asset
for him and adds up the declared profit in the
cost(COST+PROFIT) which is agreed by the Murahib.

9. 3-Morabha (Equity Participation orVenture Financing :
2- The financer (Rab_ul_Maal) approaches to the supplier
by himself or through Muqqddam (Agent) for the
purchase of machines and add up the all expenses or
less the financing amount invested by Murahib
(ARBOON)

10. 3-Morabha (Equity Participation orVenture Financing :
 The seller discloses
the cost to the
buyer
 Disclosed profit is
added
 Normal Sale
 The seller does not
disclose the cost to
the buyer
 Hidden profit
 Murabaha Sale

11. 3-Morabha (Equity Participation orVenture Financing :
• As per the rules of Shariah the seller cannot sell the goods unless
they come into his ownership.
• The goods are need to be identified and purchased.
• The bank(Rab-Ul-Maal) , being a financial institution does not have
the expertise to identify the goods and negotiate an efficient price.
• The customer, however, being in the industry, can do this. The
Bank therefore appoint him(Maqqaddam), in the first step of the
transaction, to identify and procure the goods on the bank’s behalf.

12. • Once the customer purchase the goods the risk of the goods transfers to
the Bank. Bank can now sell these goods to the customer.
• The customer play two different roles in this transaction. On that of
Bank’s agent and other of purchaser. These roles should be clearly
segregated to make the transaction halal.
• This process is explained in detail in next slides.
3-Morabha (Equity Participation orVenture Financing :3-Morabha (Equity Participation orVenture Financing :

13. 3-Morabha (Equity Participation orVenture Financing :3-Morabha (Equity Participation orVenture Financing :
Agreement to
Murabaha
Bank Client
Murabha Financing Step By Step
1- Client and bank sign an agreement to enter into Murabaha

14. 3-Morabha (Equity Participation orVenture Financing :3-Morabha (Equity Participation orVenture Financing :
Murabha Financing Step By Step
2- Client appoints as an agent to purchase asset on behalf of Bank
Agency
Agreement
Bank Client
Agreement to
Murabaha

15. 3-Morabha (Equity Participation orVenture Financing :3-Morabha (Equity Participation orVenture Financing :
Murabha Financing Step By Step
3- Bank gives money to client to buy an asset
Agreement to
Murabaha
Agency
Agreement
Disbursement to the client
Bank Client

16. 3-Morabha (Equity Participation orVenture Financing :3-Morabha (Equity Participation orVenture Financing :
Murabha Financing Step By Step
4- Client purchases the asset on behalf of Bank
Client purchases
goods and takes
possession
Transfer of Risk Vendor
Bank Client

17. 3-Morabha (Equity Participation orVenture Financing :3-Morabha (Equity Participation orVenture Financing :
Murabha Financing Step By Step
5. Client makes an offer to purchase the goods from bank.
Offer to
purchase
Bank Client

18. 3-Morabha (Equity Participation orVenture Financing :3-Morabha (Equity Participation orVenture Financing :
Murabha Financing Step By Step
6. Bank accepts the offer and sale is concluded.
Murabaha Agreement
+
Transfer of Title
Bank Client

19. 3-Morabha (Equity Participation orVenture Financing :
Murabaha financing and risk diversion
In a conventional transaction the bank transfer the risk on the client, however in
a Murabaha transaction the Bank takes the following risks:
1. Asset Risk
•Since for a short period of time the risk of Asset is transferred to the bank.
2. Credit Risk
•Since once money is receivable from the customer, the risk of non-payment
does exist

20. 3-Morabha (Equity Participation orVenture Financing :
• Murabaha transaction is the simplest from of an Islamic
Financial Transaction.
• Murabaha can be used to finance the purchase of any assets
which is recognized as Mal-e-Mutaqawam (Valuable) under
Shariah.
• A wide range of customer needs can be catered through
financing purchase of different assets by the customers.
Conclusion

21. 3-Morabha (Equity Participation orVenture Financing :
Calculation Under Murabaha Contract with Modarba