Murabaha is a sale transaction where the seller discloses the cost and profit, commonly used in Islamic banking as a mode of finance. It involves several stages, including a promise, agency, possession, and execution, ensuring compliance with Sharia law. The transaction is characterized by fixed pricing and cannot replace running finance or address liquidity needs, while also having specific conditions regarding repayment and the nature of the goods involved.

1. MURABAHA
MURABAHA
•Murabaha is a particular kind of sale
Murabaha is a particular kind of sale
where the seller discloses its cost and
where the seller discloses its cost and
profit charged thereon.
profit charged thereon.
• The price in this sale can be both on
The price in this sale can be both on
spot and deferred.
spot and deferred.

2. BANKING MURABAHA
BANKING MURABAHA
•The product of Murabaha that is being used in
The product of Murabaha that is being used in
Islamic banking as a mode of finance is
Islamic banking as a mode of finance is
something different from the Murabaha used in
something different from the Murabaha used in
normal trade .
normal trade .
• This transaction is concluded with a prior
This transaction is concluded with a prior
promise to buy, submitted by a person interested
promise to buy, submitted by a person interested
in acquiring goods through the institution.
in acquiring goods through the institution.

3. BANKING MURABAHA
BANKING MURABAHA
• It is called Murabaha to the purchase orderer .
It is called Murabaha to the purchase orderer .
• It is a bunch of contracts completed in steps and
It is a bunch of contracts completed in steps and
ultimately suffices the financial needs of the
ultimately suffices the financial needs of the
client.
client.
• The sequence of their execution is extremely important
The sequence of their execution is extremely important
to make the transaction Shariah compliant
to make the transaction Shariah compliant.
.

4. BANKING MURABAHA
BANKING MURABAHA
It is a contract wherein the institution, upon
request by the customer, purchases a asset from
the third party usually a supplier/vendor and
resells the same to the customer either against
immediate payment or on a deferred payment
basis.

5. SCOPE OF MURABAHA
SCOPE OF MURABAHA
•As it is a kind of sale, there must be a seller and buyer and some
As it is a kind of sale, there must be a seller and buyer and some
thing that is bought and sold . The institution is the seller and the
thing that is bought and sold . The institution is the seller and the
client is buyer.
client is buyer.
•It cannot be used as a substitute for running finance facility ,
It cannot be used as a substitute for running finance facility ,
which provides cash for fulfilling various needs of the client.
which provides cash for fulfilling various needs of the client.
•It is a fixed price sale and normally is done for
It is a fixed price sale and normally is done for
short term.
short term.
•The transaction can be used in order to meet the working capital
The transaction can be used in order to meet the working capital
requirements however it cannot be used to meet liquidity
requirements however it cannot be used to meet liquidity
requirements.
requirements.

6. STAGES OF MURABAHA
STAGES OF MURABAHA
•1. Promise Stage
1. Promise Stage
•2. Agency Stage
2. Agency Stage
•3. Acquiring Possession
3. Acquiring Possession
•4. Execution of Murabaha
4. Execution of Murabaha
•5. After Execution of Murabaha
5. After Execution of Murabaha

7. STAGES OF MURABAHA
STAGES OF MURABAHA
PRIOMISE STAGE
PRIOMISE STAGE

8. CREDIT APPROVAL (under
CREDIT APPROVAL (under
Shariah perspective)
Shariah perspective)
Points to Be Considered While Approving Credit
Points to Be Considered While Approving Credit
•It is essential that the transaction between two parties must be
It is essential that the transaction between two parties must be
genuine , not fictitious and should exclude any prior contractual
genuine , not fictitious and should exclude any prior contractual
relationship between the customer and original supplier .
relationship between the customer and original supplier .
•It is not permissible to transfer a contract that has been executed
It is not permissible to transfer a contract that has been executed
before between client and supplier. However revocation of prior
before between client and supplier. However revocation of prior
contract between the supplier and the client can allow the institution
contract between the supplier and the client can allow the institution
to enter in Murabaha
to enter in Murabaha
•The Institution must insure that the party from whom the item is
The Institution must insure that the party from whom the item is
bought is a third party and not the customer or his agent . In this
bought is a third party and not the customer or his agent . In this
manner the transaction can be saved from Bai Inah (Buy Back)
manner the transaction can be saved from Bai Inah (Buy Back)
which is not allowed in sharia
which is not allowed in sharia.
.

9. CREDIT APPROVAL (under
CREDIT APPROVAL (under
Shariah perspective)
Shariah perspective)
• Nature of the Business to be in scope of the Murabaha.
Nature of the Business to be in scope of the Murabaha.
Nature of business should be Halal in order to finance
Nature of business should be Halal in order to finance
it through Murabaha.
it through Murabaha.
• Differed payment not permissible in case of Gold,
Differed payment not permissible in case of Gold,
Silver and Currencies.
Silver and Currencies.
• Cyclical nature of the business.
Cyclical nature of the business.

10. CONTINUED
CONTINUED
• The Client orders the institution to buy certain goods
The Client orders the institution to buy certain goods
for him and sell him the same after acquiring. The
for him and sell him the same after acquiring. The
prerequisite is that the goods are not already owned by the
prerequisite is that the goods are not already owned by the
client.
client.
•At this stage the customer promises the institution to buy
At this stage the customer promises the institution to buy
the goods which were acquired by the institute on his
the goods which were acquired by the institute on his
request.
request.

11. CONTINUED
CONTINUED
• If the supplier is nominated by the client himself,
If the supplier is nominated by the client himself,
guarantee for good performance can be demanded.
guarantee for good performance can be demanded.
• An advance payment (called Hamish jiddiyyah) may be
received from the customer as a form of security deposit.
• In case of breach of promise Hamish Jiddiyyah can be
used to recover actual damage however it cannot be used
for covering the Cost of Funds / Opportunity Cost.

12. STAGES OF MURABAHA
STAGES OF MURABAHA
AGENCY STAGE
AGENCY STAGE

13. AGENCY STAGE
AGENCY STAGE
Agency Agreement
Agency Agreement is not the condition of the Murabaha if
is not the condition of the Murabaha if
the
the institution can make direct purchases from the supplier.
can make direct purchases from the supplier.
The
The 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 institution
therefore appoints him as its Agent (which is also permissible),
in the first step of the transaction, to identify and procure the
goods on institution behalf. This is done by execution of
Agency Agreement between the institution and the customer.
However according to Shariah Perspective it is preferable to
However according to Shariah Perspective it is preferable to
appoint the Agent other then customer.
appoint the Agent other then customer.
If goods are acquired from third party the execution of agency
If goods are acquired from third party the execution of agency
agreement will be between the institution & the third party..
agreement will be between the institution & the third party..

14. AGENCY STAGE
AGENCY STAGE
TYPES OF AGENCY AGREEMENT
TYPES OF AGENCY AGREEMENT
1.
1. SPECIFIC AGENCY AGREEMENT
SPECIFIC AGENCY AGREEMENT
When the purchase of commodity is not of
When the purchase of commodity is not of
consistent nature.
consistent nature.
2.
2. GLOBAL AGENCY AGREEMENT
GLOBAL AGENCY AGREEMENT
When the purchase of commodity is of
When the purchase of commodity is of
consistent nature.
consistent nature.

15. STAGES OF MURABAHA
STAGES OF MURABAHA
ACQUIRING POSSESION
ACQUIRING POSSESION

16. ACQUIRING POSSESION
ACQUIRING POSSESION
•Advance payment can be made to the supplier.
Advance payment can be made to the supplier.
•Discount On Acquisition Of Assets
Discount On Acquisition Of Assets
Discounts from supplier (If any) would be passed
Discounts from supplier (If any) would be passed
on to the customer at the time of Murabaha Sale
on to the customer at the time of Murabaha Sale
by reducing the cost of sales.
by reducing the cost of sales.

17. ACQUIRING POSSESION
ACQUIRING POSSESION
•If there is a rise in prices and the amount escalates
If there is a rise in prices and the amount escalates
for which financing is availed than the transaction
for which financing is availed than the transaction
can only be executed if the bank has been informed
can only be executed if the bank has been informed
and the bank subsequently accepts the same.
and the bank subsequently accepts the same.
•The institution reserves the right to reject the
The institution reserves the right to reject the
purchases if made other then agreed price
purchases if made other then agreed price.
.

18. ACQUIRING POSSESION
ACQUIRING POSSESION
•Change of commodity in the agency agreement can
Change of commodity in the agency agreement can
be done with mutual consent.
be done with mutual consent.
•Delay in Supply from the Supplier
Delay in Supply from the Supplier.
.
Delay in Supply from the supplier in case where
Delay in Supply from the supplier in case where
specific time was allowed leads to the revocation of
specific time was allowed leads to the revocation of
agency agreement. In such cases the customer will
agency agreement. In such cases the customer will
refund the cost of goods.
refund the cost of goods.

19. ACQUIRING POSSESION
ACQUIRING POSSESION
Rejection On Ground Of Quality
Rejection On Ground Of Quality
If the customer rejects the goods on ground of inferior
If the customer rejects the goods on ground of inferior
quality before the execution of Murabaha, new quality
quality before the execution of Murabaha, new quality
can be acquired through new Murabaha.
can be acquired through new Murabaha.
After execution of Murabaha the bank will not be liable
After execution of Murabaha the bank will not be liable
for any discrepancies.
for any discrepancies.

20. ACQUIRING POSSESION
ACQUIRING POSSESION
• Acquisition Of Title &
Acquisition Of Title &
Possession Of The Asset
Possession Of The Asset
1. Institution must take actual or constructive
possession of the item .
• The forms of taking delivery or possession of
items differ according to their nature and customs.
• The item must move from the responsibility of the
supplier to the responsibility of the institution .
• It is obligatory that the point when the risk of the
item is passed on by the institution to the
customer, be clearly identified.

21. ACQUIRING POSSESION
ACQUIRING POSSESION
2.Goods must exists at the time of execution of
2.Goods must exists at the time of execution of
Murabaha.
Murabaha.
• If the above two are not fulfilled than the institution
If the above two are not fulfilled than the institution
cannot execute Murabaha.
cannot execute Murabaha.
• Documentary evidence required at the time of
Documentary evidence required at the time of
possession before execution of Murabaha i.e delivery
possession before execution of Murabaha i.e delivery
challan, gate passes and sales tax invoices.
challan, gate passes and sales tax invoices.
• Murabaha payment to be made directly to the supplier
Murabaha payment to be made directly to the supplier
by the bank.
by the bank.

22. ACQUIRING POSSESION
ACQUIRING POSSESION
•Importance of Physical Inspection
Importance of Physical Inspection
•Registration is in the name of institution for those
Registration is in the name of institution for those
items where registration is required.
items where registration is required.

23. STAGES OF MURABAHA
STAGES OF MURABAHA
EXECUTION OF MURABAHA
EXECUTION OF MURABAHA

24. EXECUTION OF MURABAHA
EXECUTION OF MURABAHA
• Customer, as an Agent, confirms that goods have been
purchased & same are in his possession and that payment
has been made to the supplier.
• Customer makes an offer to purchase the goods from the
institution.
• Institution accepts the offer by stating the Cost price plus
amount of Profit and the due date for Payment by which
sale is concluded.
• At this stage relation of a buyer & seller comes into operation between the
institution & the client, & since the sale is effected on deferred payment basis,
the relation of debtor and creditor also emerges between them simultaneously.

25. EXECUTION OF MURABAHA
EXECUTION OF MURABAHA
• Customer having received delivery of Goods as per
Purchase Requisition confirms that goods have been
examined and are satisfactory in respect of quality and
suitability for his use. The customer also releases the
institution from any liability in respect of the goods in
any manner

26. AFTER EXECUTION OF
AFTER EXECUTION OF
MURABAHA
MURABAHA
Securities Against Murabaha Price
Securities Against Murabaha Price
• The institution may ask the customer to furnish a security to its
The institution may ask the customer to furnish a security to its
satisfaction for prompt payment of the deferred price.
satisfaction for prompt payment of the deferred price.
• However, it is also permissible that the customer furnishes a
However, it is also permissible that the customer furnishes a
security at earlier stages but after the Murabaha price is
security at earlier stages but after the Murabaha price is
determined.
determined.
• It is also permissible that the sole commodity itself is given to
It is also permissible that the sole commodity itself is given to
the seller as a security.
the seller as a security.
• It is not allowed to take Interest bearing instruments as
It is not allowed to take Interest bearing instruments as
securities.
securities.

27. AFTER EXECUTION OF
AFTER EXECUTION OF
MURABAHA
MURABAHA
CASE OF DEFAULT
CASE OF DEFAULT
• In the case of default by the buyer in the payment of price at the
In the case of default by the buyer in the payment of price at the
due date, the price cannot be increased.
due date, the price cannot be increased.
• However if he has undertaken, in the agreement to pay certain
However if he has undertaken, in the agreement to pay certain
amount for a charitable purpose, he shall be liable to pay the
amount for a charitable purpose, he shall be liable to pay the
amount undertaken by him.
amount undertaken by him.
• But this recovered amount from the buyer will not be considered
But this recovered amount from the buyer will not be considered
penalty nor compensation, therefore it will not account to
penalty nor compensation, therefore it will not account to
institutions income.
institutions income.
• Institution is bound to spend it for a charitable purpose on
Institution is bound to spend it for a charitable purpose on
behalf of the buyer.
behalf of the buyer.

28. ISSUES IN MURABAHA
ISSUES IN MURABAHA
Rebate in Early Payment
Rebate in Early Payment
•If a customer makes early payment and there is no commitment
If a customer makes early payment and there is no commitment
from the seller in respect of any discount in the price of
from the seller in respect of any discount in the price of
Murabaha, the seller has the sole discretion to grant him some
Murabaha, the seller has the sole discretion to grant him some
rebate.
rebate.
•It is prohibited by Shariah Standards to give Rebate to the client
It is prohibited by Shariah Standards to give Rebate to the client
on early payment as under Murabaha the price is fixed.
on early payment as under Murabaha the price is fixed.
Rollover in Murabaha
Rollover in Murabaha
•Rescheduling is allowed but repricing is not allowed.
Rescheduling is allowed but repricing is not allowed.
•Rollover is also not allowed.
Rollover is also not allowed.

29. ISSUES IN MURABAHA
ISSUES IN MURABAHA
Buy Back
Buy Back
• Under Murabaha Financing once the goods
Under Murabaha Financing once the goods
purchased by the client from the Bank the same
purchased by the client from the Bank the same
goods cannot be Pledged/ Hypothecated for
goods cannot be Pledged/ Hypothecated for
raising finance facility from the Islamic Bank.
raising finance facility from the Islamic Bank.