Bai-Murabaha

Bai-Murabaha may be defined as a contract between a Buyer and a 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 in lump sum or by installments on any fixed future date.  The profit marked-up may be fixed in lump sum or in percentage of the cost price of the goods.

It may be noted here that, in case of Bai-Muajjal and Bai-Murabaha, the Bank is a financier to the client not in the sense that the Bank finances the purchase of goods by the client, rather it is a financier by deferring the receipt of sale price of the goods sold by the Bank to the client.

If the Bank does not purchase the goods or does not make any purchase agreement with seller, but only makes payment of any goods directly purchased and received by the client from the seller under Bai-Muajjal / Bai-Murabaha Agreement, that will be a remittance of the amount on behalf of the client, which shall be nothing but a loan to him and any profit on this amount shall be nothing but Interest (Riba).

For Bank Bai-Murabaha is categorized as following:

1.   Bai-Murabaha Commercial: Investment for purchase and sale of goods to individual or Firm or Company for trading purpose shall be termed as Bai-Murabaha Commercial.

2.   Bai-Murabaha Industrial: Investment to Industrial undertaking in the form of supply of Machineries, Equipments, Raw Materials etc, will be termed as Bai-Murabaha Industrial.

3.   Bai-Murabaha Agricultural: Investment to agriculture sector for supply of seeds, fertilizer etc, shall be termed as Bai-Murabaha Agriculture.

4.   Bai-Murabaha Import: Investment for Import of goods from abroad shall be termed as Bai-Murabaha Import.

Important features

01.

It is permissible for the Client to offer an order to purchase by the Bank particular goods describing its specification and committing himself to buy the same from the Bank on Murabaha, i.e., cost plus agreed upon profit.

02.

03.

It is permissible to take cash/ collateral security to guarantee the implementation of the promise or to indemnify the damages.

04.

It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both, like any other debt. Mortgage/Guarantee/ Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.

05.

Stock and availability of goods is a basic condition for signing a Bai-Murabaha Agreement. Therefore, the Bank must purchase the goods as per specification of the Client to acquire ownership of the same before signing the Bai-Murabaha agreement with the Client.

06.

After purchase of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client, i.e., after purchase of the goods by the Bank and before selling of those on Bai-Murabaha to the Client buyer, the Bank shall bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the Bank of the defects.

07.

The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.

08.

The Bank shall sell the goods at a higher price (Cost + Profit) to earn profit. The cost of goods sold and profit mark-up therewith shall separately and clearly be mentioned in the Bai-Murabaha Agreement. The profit mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no circumstances, the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc.

09.

The Price once fixed as per agreement and deferred cannot be further increased.

10.

It is permissible for the Bank to authorize any third party to buy and receive the goods on Bank's behalf. The authorization must be in a separate contract.