Embed Size (px)
Citation preview
1
Murabahah
Khairuddin Zakaria
Q 1
Define Murabahah literally and as a technicalterm.
2
A 1
Literally: the word murabahah is derived from the word ‘ribh’, which meansprofit or gain.
technical term: murabahah is generally defined as: the sale of acommodity at the price the seller has purchased it, with the addition of astated profit known to both the seller and buyer.
it is a cost-plus-profit sale in which the seller expressly discloses the profit.
Murabahah sale in its original Islamic connotation is simply a sale.
The only feature distinguishing it from other kinds of sale is that the seller inmurabahah expressly tells the purchaser how much cost he has incurredand how much profit he is going to charge in addition to the cost.
if a person sells a commodity for a lump sum price or installment basiswithout reference to the cost, this is not murabahah, even though he isearning some profit on his cost because the sale is not based on a ‘cost-plus’ concept.
This sale is called musawamah.
Cont. Murabahah is a sale based on trust (amanah). Classical jurists have given several definitions of murabahah as follows: A. Ibn al-Humam’s definition, “Al-murabahah is a contract of delivery of
traded goods by a seller to the buyer by offering the buyer the selling costprice plus the total profit.”
B. Ibn Qudamah defined al- murabahah as, “A form of business transactionwhereby the customer is informed that the goods are sold at a price whichincludes the cost price and profit.”
C. Imam Shafi’i described murabahah as: “When someone sells an itemwith a contract, for instance, for every ten products the profit is one, thebuyer thus, must pay the cost price, that is 90 dirham, plus the profit of 1dirham for every ten, hence 9 dirham and therefore eventually the totalfinancing is 99 dirham”.
D. Imam Malik explained that, “Al-murabahah occurs when an item is soldand the profit taken is one dirham for every dirham of the capital spent (1cost price + 1 profit rate = 2 total financing), or half dirham for every dirhamspent (1 cost price + 0.5 profit margin =1.5 total financing), or eleven dirhamfor every ten dirham capital spent (10 cost price + 11 profit margin = 21 totalfinancing).
Whether the profit is lower or more than the capital, it depends on theagreement between both parties.”
3
Q 2
What is the basis of murabahah from al-Quran and Sunnah?
A 2
Proof from al-Qur’an There are many Qur’anic verses explicitly permitting sale in general and
these verses are an indirect proof of the validity of murabahah. This is because murabahah is considered as a type of trading. Some of
these verses are: 1. “And Allah has permitted trade” [2:275]. (وأحل اللھ البیع وحرم الربا " ).275:البقرة" In this regard, murabahah (cost-plus sales) is clearly concluded by mutual
consent and it comes under the general permission in this verse.
Proof from Sunnah Some scholars have made murabahah analogous to a form of sale called
tawliyyah (sale at purchase price without making profit). This is because the Prophet (pbuh) purchased a female camel from Abu
Bakr r.a. for use as transportation to migrate to al-Madinah. Abu Bakrwanted to give it to the Prophet (pbuh) free-of-charge and the Prophet(pbuh) refused and said, “I will preferably take it at the acquisition price.”
This Hadith indirectly implied that a commodity can be sold at the acquisitionprice and also the acquisition price with mark up.
4
Q 3
Explain the three elements of murabahah
A 3
There are three important elements of murabahah, which are: 1: Subject matter: of a murabahah transaction involves the product and the selling
price. The product shall be clearly defined including its type, quantity and other
descriptions. the selling price of murabahah, its cost and profit must also be disclosed to the
customer clearly.
2: The contracting parties: the seller as the financier and the buyer as thecustomer.
these two parties are important because they are the principal players in thebusiness transaction.
The seller is responsible for supplying the product ordered by the buyer and thebuyer must have the full obligation to pay for the product he purchased according tothe agreed terms of the agreement.
Both contracting parties must be adults, rational, intelligent, and can be heldaccountable.
3: Statement: The contract consists of the offer by one party and the acceptance byanother party.
It shall contain two important elements which are the cost price of the product andthe rate of profit.
5
Q 4
Discuss the conditions for murabhah
A 4
the scholars have outlined several conditions formurabahah. These conditions are:
A. Knowledge of the initial price or cost by thebuyer.
The buyer must know the price at which the sellerobtained the object of sale.
In this regard, the sale is considered defective if theinitial price is not known during the contract session.
B. Knowledge of the profit margin. Otherwise, it will not be regarded as murabahah;
rather it is a normal sale.
6
Cont. No riba trading shall be involved: The product traded using the murabahah scheme cannot be paid as per
the barter system trading from some ribawi items which are prohibitedby the Prophet (pbuh), namely, gold for gold, silver for silver, wheat forwheat, flour for flour, dates for dates and salt for salt and barley forbarley unless the weight, measurement and the calculation are equal.
Murabahah is forbidden for goods or properties from these six ribawigoods.
for instance, selling 100 kg of good flour at the price of 120 kg of subquality flour, because it is clear that this kind of transaction is forbiddenas it constitutes riba.
C. The initial contract must be valid: The traded item or property must be lawfully owned by the seller
according to Shariah requirements. If the product is acquired through forgery, then the seller or financier is
not the valid owner of the item. In this situation, the transaction in the murabahah contract is not valid,
as per other terms of sales in Islamic commercial transactions.
Q 5
Explain the practical steps for murabahahfinancing
7
A 5
The practical steps for murabahah financing: Shall be as follows: First: The client and the institution sign a master agreement whereby
the institution promises to sell and the client promises to buy thecommodities on an agreed ratio of profit added to the cost.
Second: the institution appoints the client as his agent for purchasingthe commodity on its behalf, and an agreement of agency is signed byboth parties.
Third: The client purchases the commodity on behalf of the institutionand takes possession as an agent of the institution.
Fourth: The client informs the institution that he has purchased thecommodity on its behalf, and at the same time, makes an offer topurchase it from the institution.
Fifth: The institution accepts the offer and the sale are concludedwhereby the ownership as well as the risk of the commodity istransferred to the client.
All these five stages are necessary to affect a valid murabahah.
Cont.
If the institution purchases the commodity directly from the supplier(which is preferable) it does not need any agency agreement.
the commodity must remain in the risk of the institution during the periodbetween the third and the fifth stages.
This is the only feature of murabahah which can distinguish it froman interest-based transaction.
In the above steps of murabahah financing, the parties involved havedifferent capacities at different stages as follows:
A. At the first stage, the institution and the client promise to sell andpurchase a commodity in future. This is not an actual sale.
It is just a promise to affect a sale in future on murabahah basis. at this stage the relationship between the institution and the client is that
of a promisor and a promisee. B. At the second stage, the relationship between the parties is that of a
principal and an agent. C. At the third stage, the relationship between the institution and the
supplier is that of a buyer and seller.
8
Cont. D. At the fourth and fifth stages, the relationship of buyer and
seller comes into operation between the institution and the client. the relation of a debtor and creditor also emerges between
them simultaneously. In a murabahah contract the institution may ask the client to
furnish a security to its satisfaction for the prompt payment of thedeferred price.
It may be in the form of signing of a promissory note or a bill ofexchange, but it shall be done after the actual sale takes place,that is, at the fifth stage mentioned above.
The reason is that the promissory note is signed by a debtor infavour of his creditor, but the relation of debtor and creditorbetween the institution and the client begins only at the fifthstage, whereupon the actual sale takes place between them.
MurabahahParties relationship
Promisor& Promisee
Principal& Agent
Buyer& Seller
Debtor& Creditor
9
Q 6
Can interest rate be use as benchmark indetermining?
A 6
Use of Interest Rate as Benchmark
Many institutions which offer financing by way of murabahah determine theirprofit or mark-up on the basis of the current interest rate, mostly usingLIBOR (Inter-bank offered rate in London) as the criterion.
For example, if LIBOR is six per cent, they determine their mark-up onmurabahah equal to LIBOR or some percentages above LIBOR.
This practice is often criticised on the grounds that profit based on a rate ofinterest should be as prohibited as interest itself.
If a murabahah transaction fulfils all of its conditions, merely using theinterest rate as a benchmark for determining the profit of murabahah doesnot render the transaction as invalid, haram or prohibited, because the dealitself does not contain interest.
The rate of interest has been used only as an indicator or as a benchmark.
10
LIBOR
BBA LIBOR is the most widely used benchmarkor reference rate for short term interest ratesworld-wide.
It is calculated daily by the BBA.
BBA LIBOR is a trademark of the BBA, and thedata remains the intellectual property of theBBA.
BBA: British Bankers' Association.
For more information see: http://www.bba.org.uk.
Q 7
What are the remedies in situation where theclient default on his payment to the institutionin a murabahah contract?
11
A 7
Penalty of Default If the client defaults in payment of the price at the due date, the
price cannot be increased. In interest-based loans, the amount of loan keeps on increasing
according to the period of default. In murabahah financing, once the price is fixed, it cannot be
increased. This restriction is sometimes exploited by dishonest clients who
deliberately avoid paying the price at its due date because theyknow that they will not have to pay any additional amount onaccount of default.
In order to solve this problem, some contemporary scholarshave suggested that the dishonest clients who default inpayment deliberately should be made liable to paycompensation to the Islamic bank for the loss it may havesuffered on account of default.
Cont.
In Malaysia, the regulator has agreed that the bank cancharge one per cent from the total outstanding amountor the actual loss as compensation for default ofpayment and it shall only be charged once and notcompounded.
In Middle East practice, the client, when entering into amurabahah transaction, should undertake that in casehe defaults in payment at the due date, he will pay aspecified amount to a charitable fund maintained by thebank.
It must be ensured that no part of this amount shall formpart of the income of the bank.
12
Q 8
Is the bank allowed to give rebate for earlysettlement of murabahah financing?
A 8 Rebate on Early Payment Sometimes the debtor wants to pay earlier than the specified date. In this case he wants to earn a discount on the agreed deferred price.
Is it permissible to allow him a rebate for his early payment? This question has been discussed by the classical jurists in detail. The issue is known in Islamic legal literature as “da’ wa taajjal” (give
discount and receive soon). Some earlier jurists have held this arrangement as permissible, but the
majority of the Muslim jurists, including the four recognised schools ofIslamic jurisprudence, do not allow it if the discount is held to be a conditionfor earlier payment.
The view of those who allowed this arrangement is based on a Hadith inwhich Abdullah ibn Masud was reported to have said that when the Jewsbelonging to the tribe of Banu Nadir were banished from Madinah (becauseof their conspiracies) some people came to the Prophet (pbuh) and said;“You have ordered them to be expelled, but some people owe them somedebts which have not yet matured.” Thereupon the Prophet (pbuh) said tothem (that is, the Jews who were the creditors), “Give discount and receive(your debts) soon”.
13
Cont. The majority of the Muslim jurists, however, do not accept this
Hadith as authentic. Even if the Hadith is held to be authentic, theexile of Banu Nadir was in the second year after hijrah, when ribawas not prohibited yet.
the majority of the jurists hold that if the earlier payment isconditioned with discount, it is not permissible.
However, if this is not taken to be a condition for earlier payment,and the creditor gives a rebate voluntarily, it is permissible.
The Islamic Fiqh Academy takes the same view in its annualsession.
It means that in a murabahah transaction effected by an Islamicbank or financial institution, no such rebate can be stipulated in theagreement, nor can the client claim it as his right.
if the bank gives him a rebate on its own, it is not objectionable.
Q 9
What are the prohibited elements inmurabahah?
14
A 9
THE PROHIBITED ELEMENTS IN MURABAHAH it is important to highlight some basic mistakes often
committed by the financial institutions in the practicalimplementation of the concept. Among these mistakes whichconsidered as prohibited elements are:
1. some financial institutions are using murabahah for financingoverhead expenses of a firm or company like paying salaries oftheir staff, paying the bills of electricity and settling off theirdebts payable to other parties.
These practices are totally unacceptable because murabahahcan be used only where a commodity is intended to bepurchased by the customer.
Other suitable modes of financing like musyarakah, leasing,etc. can be used according to the nature of the requirement.
Cont. 2. The clients sign the murabahah documents merely to
obtain funds though they do not intend to use these funds topurchase a specific commodity but to use them for someother unspecified purpose.
Obviously this is a fabricated deal and it is the duty of thefinancier to make sure that the client really intends topurchase a commodity which may be subjected tomurabahah.
3. Sale of commodity to the client is affected before thecommodity is acquired from the supplier.
This mistake is always committed in transactions where all thedocuments of murabahah are signed at one time withouttaking into account the various stages of the murabahah.
This is totally against the basic principles of murabahah.
15
Cont.
Without observing this basic feature of murabahahfinancing, the whole transaction turns into aninterest-bearing loan.
4: Entering into a murabahah contract oncommodities already purchased by their clients froma third party.
This practice is unacceptable in Shariah.
Once the commodity is purchased by the clienthimself, it cannot be purchased again from thesame supplier.
Cont.
If it is purchased by the bank from the client himselfand is sold to him, it is a buy-back technique, which isdisputed in Shariah, especially in murabahah.
In fact, if the client has already purchased acommodity and he approaches the bank for funds.
he either wants to set-off his liability towards hissupplier or wants to use the funds for some otherpurposes.
In both cases, an Islamic bank should not finance theclient based on murabahah because a murabahahcontract can only be affected on commodities whichhave not been purchased by the client yet.
16
Q 10
What are the important clauses that need tobe included in murabahah documentation?
A 10
DOCUMENTATION OF MURABAHAHAs for the documentation of the contract of murabahah,the following are some important elements that shall beincluded in the documentation and samples of salientfeatures in the contract:
1. Sale and Purchase of the Goods 2. Securities 3. Fees and Expenses 4. Payment of Contract Price 5. Events of Default 6. Penalty 6. Indemnities 7. Assignment
17
شكرا جزیال
Thank You
