Why we do Murabaha Contract

Murabaha Sale

Murabaha Sale! It is a sale when a person expressively mentioned about cost or original price of the goods and adds some profit before selling to next. Murabaha is absolutely not a loan or not any kind of loan. It is simply a sale and purchase deal either on cash or on deferred payment.

Differentiate between Murabaha and Musawamah

Murabaha is any sale where seller particularly informs the cost and profit of the product.

Whereas, Musawamah is a kind of sale where seller needs not to disclose the first price of the product and sale is completed on agreed price.

Rules of Murabaha

  • This is mandatory to have existence of subject of sale.
  • It is necessary that subject of sale shall be in the ownership at the time of sale.
  • Physical or constructive possession is also necessary for the subject of sale.
  • The sale of subject shall be absolute and instant.
  • Commodity shall not be void or prohibited according to Islam.
  • Buyer shall know the subject of sale and its specifications.
  • Sold commodity’s delivery to the buyer shall be curtained.

Price of Murabaha

  • Subject of sale shall have a value.
  • Price of the product shall be certain and declared clearly at the time of transaction.
  • It is not allowed to set price upon the contingency, price shall be absolute at the time of sale transaction.
  • Product can be sold at a certain future date on fixed price either lump-sum or in installments.

Murabaha in Islamic Banks

Murabaha in Islam stands on five pillars, they are

  1. Seller
  2. Buyer
  3. Price
  4. Subject of sale
  5. Offer and Acceptance (Sigah and Qabul)

There is a signed document in between bank and client to create Murabaha contract. Client acts as an agent on the behalf of bank to purchase goods. This is kind of agency contract. Client purchases goods according to purchase order issued by bank. All risk transfer to bank as payment is made by bank. However, client takes the possession of goods. Now client starts to make efforts to purchase goods from bank mostly, on differed payment method as per agreed schedule. Sale concluded as soon as bank accepts the offer.

It is very necessary to take care that price cannot be changed once it is locked and agreed by bank and client. There is very slight difference between interest base loan and Murabaha, due to which it is highly recommended to carry out Murabaha transaction with extra care.

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