Bai Murabahah

Definintion

Bai-Murabaha may be defined as a contract between a Buyer and Seller under which the
Seller sells certain specific goods permissible under Islamic Shariah and the Law of the
land to the Buyer at a cost plus agreed profit payable in cash or on any fixed future date
in lump sum or by installments.

Characteristics

Murabahah not a mode of financing but a source to avoid interest Dealing.

Its not a type of loan, but a deal (Bai)
Murabahah can be used as source of financing when client needs funds to purchase any

product or machinery etc.

Sharing of Risk of loss differentiate Murabahah from the interest category.
Product Must be bought from third party for avoid buy back transaction.
Roll over is not Valid in Murabahah.
If actual cost cannot be identified then Murabahah deal not possible.

Pillars of Bai Murabahah

a)
b)
c)
d)
e)

Seller
Buyer
Merchandise or goods
Price
Sighah: Offer (Ijab) and Acceptance (Qabul)

Essential Elements of Bai Murabahah

1) Product and selling price

 Product must be clearly defined including its type, quantity and other
descriptions.
Selling price- its cost and profit must also be disclosed clearly and truthfully.
Act of concealing cost price and/or margin of profit render transaction null and
void.
2) Contracting parties
Seller or financier responsible for supplying the product ordered by the buyer.
Buyer or customer obligated to pay for the product he purchased according to
agreed terms of the agreement.
Both must be adults, rational, intelligent and can be held accountable.
3) Offer and acceptance
It shall contain the two important elements mentioned for example cost price and
rate of profit.
The original price must be fungible for example the price at which the seller
obtained the goods must be measured by weight, volume or number of
homogeneous goods.
4) No Riba trading shall be involved
Products traded cannot be paid by barter system from ribawi items prohibited by
the Prophet (s.a.w)
For example Gold for gold, silver for silver, wheat for wheat, flour for flour, dates
for dates and salt for salt and barley for barley unless weight, measurement and
the calculations are equal.
Also forbidden egg. Selling 100kg of good flour at the price of 120kg of sub
quality flour constitutes riba.

5) The initial contract must be valid

The traded item or property must be lawfully owned by the seller according to
Shariah requirements.

Modus Operandi Bai Murabahah

Payment of purchase price + Premium

a) The client and the institution sign an overall agreement whereby the institution promises

Payment of purchase price

to sell and the client promises to buy the commodity from time to time on an agreed ratio
of profit added to the cost. This agreement may specify the limit up-to which the facility
may be availed.
b) An agency agreement is signed by both parties in which the institution appoints the client
as his agent for purchasing the commodity on its behalf.
c)
client purchases the commodity on behalf of the institution and takes possession as
SaleSale
of asset
of The
asset
the agent of the institution.
d) The client informs the institution that it has purchased the commodity and simultaneously
makes an offer to purchase it from the institution.
e) The institution accepts the offer and the sale is concluded whereby ownership as well as
risk is transferred to the client.

Current Issues

Flows of Bai Murabahah