Murabaha - Comprehansive PDF

Murabaha – Cost plus profit sale By: Muhammad Awais Naeem Mufti, Ph.D., CSAA, IBCC Resident Shariah Board Member – United Bank Limited, Pakistan. Roadmap Business worldwide & Shariah Analysis Business in todays world Banking Business – Needs catered, history & sol...

Murabaha – Cost plus profit sale By: Muhammad Awais Naeem Mufti, Ph.D., CSAA, IBCC Resident Shariah Board Member – United Bank Limited, Pakistan. Roadmap Business worldwide & Shariah Analysis Business in todays world Banking Business – Needs catered, history & solutionns Islamic solutions to Commercial needs commercial needs Islamic alternates Sale & types Essentials of Murabaha Complete introduction to Murabaha sale Murabaha in a Bank Scope Application Exercise & calculation Know your Murabaha Case study 2/25 Business in todays world Banking Business Catered Needs, History, CB & IB Solutions Basic Needs that are being catered in Banking Sector Safety of Money Where customer wants to save his/her money Where customer wants safety & profit Safety of Money & Motive is security earning Motive is earning Where customer wants money for his/her necessities Need Money For running needs For Business needs Basic Needs I History Security of Amanat Money Qard Buried in soil Hold in home etc. Security of Motive is security – Low risk investment like Musharakah, Money & earning Mudarabah, Wakalah etc. Motive is earning - High risk investment like proprietorship For running Borrowing of money (Qard) needs Borrowing of assets (Aariah) Purchasing on deferred payments, Musharakah, Murabaha, Ijarah For Business Partnership (Shirkat) needs Investment (Mudarbah) Services (Ijarah) Many more Conventional Solutions Security of Money Amanat Current Accounts Qard Buried in soil Borrowing Hold in home etc. Lending Security of Money Motive is security – Low risk investment like Musharakah, Mudarabah, & earning Wakalah etc. Saving Accounts & Motive is earning - High risk investment like proprietorship Borrowing TDR Lending For running needs Borrowing of money (Qard) Consumer loans Borrowing of assets (Aariah) Borrowing Purchasing on deferred basisLending Musharakah, Murabaha, Ijarah For Business Partnership (Shirkat) needs Investmeant (Mudarbah) Corporate loans Services (Ijarah) Borrowing Lending Many more Islamic Banking Solutions Current Accounts Amanat Qard Buried in soil QARD Hold in home etc. Saving Accounts & Motive is security – Low risk investment like Musharakah, Mudarabah, TDR Wakalah etc. MUDARABAH Motive is earning - High risk investment like proprietorship, high risk Mudarabah, high risk Musharkah Consumer Finance Borrowing of money (Qard) Borrowing of assets (Aariah) Musharakah, Ijarah & DM cum Ijarah Purchasing on deferred basis, Musharakah, Murabaha, Ijarah Corporate Finance Partnership (Shirkat) Investmeant (Mudarbah) Musharakah, Ijarah, Murabaha, Istisna, Salam as per need Services (Ijarah) Many more Acceptable Modes of Islamic Finance Islamic Financing Modes Partnership Intermediary Sale Based Rental Based Based Contract - Musawamah - Ijarah - Wakala - Mudaraba -Murabaha - Diminishing Kafalah Musharakah - Musharaka - Salam - Takaful - Istisna Solutions to Commercial Facilities Solutions to Conventional Facilities Business Needs Conventional Facilities Islamic Banking solutions Raw Material Working Capital (NICF) – Non Murabaha - for working capital/consumer Interest Cash Finance goods Overheads / Utilities Working Capital (NICF) - Non Salam/Istisna - for overheads, utilities & Interest Cash Finance receivable Finished Goods Working Capital (NICF) - Non Tijarah - for finished goods & receivables Interest Cash Finance Trade receivable financing Discounting / Transaction based Musharakah/ Mudarabah Rental financing NICF – Short Term Loan Lease & Sub Lease – for rental financing Running Documentary Credits Letter of Credit sight / usance Murabaha/Ijarah for retirement of sight LC (Sight LC / Usance LC) Musawamah for Usance LC Forward Cover Hedging / Future sale Wa’ad for forward cover Solutions to Conventional Facilities Shipping Guarantees Shipping Guarantee Kafalah for Shipping Guarantee Export Bill Discounting Foreign bills purchased (FBP) Salam against Export Bills Export Refinance Scheme ERF Facility (Export Refinance Murabaha/Istisna Islamic Export Facility) Refinance Acquisition/replacement/e NIDF (Non-Interest Demand DM, DM S&LB, Ijarah, Sukuk xpansion of fixed assets, Finance) plant & machinery Buying a car or house Mortgage / Lease DM, DM S&LB, Ijarah New Project Project Finance Facility DM, DM S&LB, Ijarah, Sukuk Securitization Bonds financing Sukuk & syndicated project financing Essentials of Murabaha Sale – Basic Guidelines Essentials of a Sale Contract Contracting Subject Price Contract Parties Matter Sane & Fixed & Existing Offer Mature Agreed Owned & Acceptance Possessed Shariah Compliant 2/25 Types of Trust sale A trust sale is a type of sale in which buyer and seller agree on disclosure of actual cost while General sale is a type where seller quote a price whit out disclosure of cost; In trust sales honest disclosure of cost by seller is necessary; There are three types of trust sale: Ba’y Tauolia Cost to cost sale; Ba’y Wa’dia Below the cost sale; Ba’y Murabaha Cost plus profit sale; Example of general or bargain sale is Musawama in which seller quote a price only; Murabaha & Musawama Murabaha is a particular kind of sale where the seller discloses its cost and profit charged thereon; Murabaha can be a credit or a spot payment sale; The price in credit sale may be recovered in single payment or in tranches; Murabaha in a Bank  Banking Murabaha The product of Murabaha that is used in Islamic banking as a ‘mode of financing’ is slightly different from the Murabaha used in normal trade; This transaction is concluded with a prior promise to buy from the person interested in acquiring goods through the institution; It is a contract wherein the institution, upon request by the customer, purchases an asset from a vender and resells the same to the customer against immediate or deferred payment basis; This is called Murabaha to the purchase orderer; 18/2  Banking Murabaha The banking Murabaha is an intermediary sale which means this sale is done between vender, Islamic bank and customer; Therefore it is executed through various stages and uses a bunch of contracts completed in steps; The sequence of their execution is extremely important to make the transaction Shari’ah compliant; Since it is a kind of sale, there must be a seller and buyer and something that can be bought and sold; The Islamic bank is the seller and the client is buyer; 19/2 Scope of Murabaha in a Bank Murabaha is a fixed price sale and is normally used for short term financing; Murabaha cannot be used as a substitute for cash advancing or pure cash based running finance facility; The transaction can be used in order to meet the working capital requirements however it cannot be used to meet liquidity requirements; Murabaha can be used for long term as well but it such a case it would be a fixed rate transaction and will not accept flexibility in rate of financing; 20/2  A Simple Murabaha Process Flow Order Form + Agency Customer Agreements Bank Customer Authorization Purchase Order Goods Goods Bank Customer Supplier Declaration Delivery Physical Inspection Murabaha Payment Customer Bank Customer Contract Maturity Islamic Bank calculates the profit on number of days it remains out of pocket. Sale Price, Payment date etc. agreed  Stages of Murabaha Promise Stage; Credit approval (from Shari’ah perspective); Murabaha Facility Agreement – MOU; Agency Stage: Purchase Requisition; Promise to Purchase & Personal Guarantee; Hamish Jiddiyya (earnest money); Acquiring Possession; Execution of Murabaha; After Execution ofMurabaha; 22/2  Stages Approvals Other issues 8 1 (Credit & Shariah) Payment of Murabaha sale Documentation 7 2 MMFA & MAA Promise stage Murabaha offer & Acceptance 3 PR, UTP, LG, Hamish Jiddiyah 6 Asset Acquiring Possession & inspection 4 through Agency 5 Credit approval (from Shari’ah perspective) Points to Be Considered during credit approval: 1. The transaction between two parties must be genuine and not fictitious; 2. There should not be any prior contractual relationship between the customer and original supplier for the same thing that is being sold; 3. It is not permissible to transfer a contract that has been executed before between client and supplier; 4. However if prior contract between the supplier and the client is revoked, then the institution to enter in Murabaha on that item; Credit approval (from Shari’ah perspective) 5. The Institution should insure that the party from whom the item is bought, is a third party and not the customer or his agent. This is to avoid Bai’ Inah (Buy Back) which is not allowed in Shariah; 6. Nature of the Business to be in scope of the Murabaha should be Halal; Cyclical nature of the business (to ensure its holding period 7. No commitment fee is charged; 8. Gold, Silver and Currencies are not eligible for Murabaha; Commodities / assets study in respect of: 1. Uniqueness; Pricing; Active Market; Risk Profile; 2. Cash Flow Analysis Agency stage – Murabaha Facility Agreement (MOU) Points to be considered in MOU: Mentioning Limits of each facility; Security to be submitted by the Customer; Other terms and conditions covering all the facilities approved for the Customer; The Agreement to be signed by both the parties; Securities against Murabaha price can be asked. Following points are important: The institution may ask the customer to furnish a security to its satisfaction for prompt payment of the deferred price. This security can be demanded at earlier stages also; It is also permissible that the sole commodity itself is given to the seller as a security; It is preferable not to take Interest bearing instruments as securities; 26/25 Promise stage – Purchase Requisition The Client orders the institution to buy certain goods for him and sell him the same after acquiring. Containing the details of the goods required to purchase from the Supplier, Cost Price and expected date of delivery The prerequisite is the goods are not already owned by the customer. Promise stage – Promise to Purchase & Personal Guarantee Promise to Purchase: At this stage the customer promises the institution to buy the goods which were acquired by the institute on his request; Normally Purchase requisition contains this Promise; Personal Guarantee If the supplier is nominated by the client himself, guarantee for good performance can be demanded;  Promise stage – Hamish Jiddiyah (earnest money) & payment of Murabahah Goods Hamish Jiddiyah (earnest money): 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 Funds / Opportunity Cost. Payment of Murabaha goods: It is advisable that Murabaha payment to be made directly to the supplier by the bank. However, advance payment can be made to the supplier also; Such payments (to customers) should be discouraged; Stages of Murabaha – Agency stage Agency Agreement is not the condition of the Murabaha if the institution can make direct purchases from the supplier; 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 Shari’ah perspective it is preferable to appoint the Agent other then customer; If goods are acquired from third party the execution of agency agreement will be between the institution & the third party; Types of agency agreement Specific agency agreement: Agreement for specific purchase when the purchase of commodity is not of consistent nature; General agency agreement: When the purchase of commodity is of consistent nature; Change of commodity: Change of commodity in the agency agreement can be done with mutual consent; Stages of Murabaha – Acquiring Possession Discount in price (decline in cost for bank): Discounts from supplier (If any) would be passed on to the customer at the time of Murabaha Sale by reducing the cost of sales; Increase in cost (for bank): If there is a rise in prices and the amount escalates for which financing is availed than the transaction can only be executed if the bank has been informed and the bank subsequently accepts the same; The institution reserves the right to reject the purchases if made other then agreed price; Delay in Supply from the supplier: Delay in supply from the supplier in case where specific time was allowed, leads to the revocation ofagency agreement. In such cases the customer will refund the cost of goods; Stages of Murabaha – Acquiring Possession Rejection on Ground of Quality: If the customer rejects the goods on ground of inferior quality before the execution of Murabaha, new quality can be acquired through new Murabaha; After execution of Murabaha the bank will not be liable for any discrepancies; 33/25  Stages of Murabaha – Acquiring Possession Acquisition of title & possession of the asset: Institution must take actual or constructive possession of the item; The forms of taking delivery or possession of items, are 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; Goods must exists at the time of execution of Murabaha; If the above two are not fulfilled than the institution cannot execute Murabaha; Documentary evidence required at the time of possession before execution of Murabaha i.e. delivery receipt, gate passes and sales tax invoices etc.;  Stages of Murabaha – Physical inspection & possession report Importance ofPhysical Inspection:  It is advisable that bank should appoint one person for physical inspection; This inspection ensures the sale by the agent on behalf of bank; Possession report from agent:  After purchase of goods, the Customer as an Agent, confirms that goods have been purchased and are in his possession and payment has been made to the supplier;  Customer as an Agent send a Possession Report confirming that he has purchased the goods as per Bank’s instruction and the same are in his custody; Stages of Murabaha – Murabaha sale: Offer & Acceptance The Customer will make an offer to purchase the goods acquired by him on Bank’s behalf mentioning the Offer Price (Comprising Cost plus Bank’s Profit); The Bank will accept the offer made by the Customer. All the terms of the Murabaha Transaction such as Sale Price ( Cost plus Profit ) Due Date or Schedule of Payments etc. must be mentioned in the Bank’s Letter of Acceptance; 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; Stages of Murabaha – Acknowledgment by customer 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; 37/25 After sale: Case of default In the case of default by the buyer in the payment of price at the due date, the price cannot be increased. However if he has undertaken, in the agreement to pay certain amount for a charitable purpose, he shall be liable to pay the amount undertaken by him. But this recovered amount from the buyer will not be considered penalty nor compensation, therefore it will not account to institutions income; Institution is bound to spend it for a charitable purpose on behalf of the buyer; 38/25  Issues in Murabaha Is it Financing ? It is a general misconception that Murabaha is an Islamic mode of financing and substitute of conventional bank’s Cash Finance or Running Finance. It is not a financing mode but its a “Sale” transaction where-by fund provider arranges to sell some identified goods to a client on his own request. So it is an alternate to financing arrangement. Subject Matter of Murabaha: Subject Matter of a Murabaha is always existing, identified & owned tangible asset/goods; Goods must exists at the time of execution of Murabaha; Murabaha cannot be done in all commodities, e.g. such as currencies, gold, silver.; Murabaha cannot be used for paying utility bills, wages, overhead expenses, etc.; General rules of sale related to subject matter must be followed; 39/25  Issues in Murabaha Interest rate be used as a Benchmark:  Using Interest Rate benchmark for determining the profit in halal transactions does not render the transaction as invalid or haram;  The nature of transactions determines the validity of the transaction; Pricing:  It is a fixed price sale transaction which can be used in order to meet the working capital requirements however it cannot be used to meet liquidity requirement; Timing of ‘Offer & Acceptance: A Murabaha financing arrangement consists of a series of documents to be executedat various stages, the sequence and timing of which is extremely important; Through this, client and the bank execute an important step of a valid Murabaha sale i.e. Offer &Acceptance. This is to be signed by the customer when it has purchased and taken possession of the goods as the Bank’sagent; Offer & Acceptance must be signed while the goods are still in existence and have not been used in the production process or sold to some other entity.  Issues in Murabaha Penalty on late payments:  As soon as the Murabaha is executed, the Murabaha price becomes a receivable (Dayn) for the Bank. Hence, any amount charged over and above the “dayn” amount will be Riba;  However, it is permissible to have an undertaking from the customer to pay an amount of money or a percentage of the debt to be donated to charitable causes in the event of delay in payment/installments. Rebate in early payment:  If the customer makes early payment and there is no commitment from the institution in respect of any discount in the price of Murabaha, than the institution has the sole discretion in allowing them the rebate.  Issues in Murabaha Rollover in Murabaha:  Rescheduling is allowed but re-pricing is not allowed.  Rollover is also not allowed since each Murabaha transaction is for the purchase of a particular asset. A new Murabaha can only be executed for the purchase of new assets; Buy Back: Under Murabaha Financing once the goods purchased by the client from the Bank the same goods cannot be Pledged/ Hypothecated for raising finance facility from the Islamic Bank; 42/25 Issues in Murabaha Profit Recognition in Murabaha: Generally in Murabaha transaction there are in two stages: Investment Stage (Agency to Purchase); Financing Stage (Declaration to payment); The profit for the Murabaha transaction can be recognized after the goods are sold by the bank to the customer; 43/25 Murabaha Documentation &Relationship Manager’s (RMs) Responsibility Relationship Manager’s (RMs) Responsibility Ensure that Customer’s need & purchase process cycle is fully understood and conforms to the approved Murabaha processes. The Credit proposal must have Shariah Advisor’s approval. Ensure that MMFA & Agency agreement are executed before any disbursement to the client; Ensure that payment is made directly to the supplier of goods. In cases where funds are disbursed to the client under Agency, it must be ensured that they are properly utilized for the actual purchase of the required goods; Once the goods have been purchased by the Client and declaration is forwarded to the bank, the RM must ensure the presence of goods at client end; 45/25  Relationship Manager’s (RMs) Responsibility A random physical inspection of the goods to be done by RM to verify the same. (at least in 5%-10% cases); The relevant purchase invoices must be collected as soon as the client makes purchases of the goods; The Declaration must be executed immediately, before consumption of goods, to transfer the ownership to the client. The timeline given for Murabaha Declaration should be taken as maximum time allowed for declaration receipt; Murabaha should not be used for paying utility bills, wages, overhead expenses, etc.; A request for disbursement of new Murabaha for payment of old debt is not allowed and to be strongly avoided. 46/25  Murabaha Documentation and relationship Manager’s (RMs) Responsibility There are a number of documents involved in a Murabaha financing transaction. The most essential of these documents are:  Master Murabaha Financing Agreement;  Agency Agreement  Order Form / Draw Down Notice Declaration &  Murabaha Contract   Purchase Evidences  Demand Promissory Note Payment Schedule  Master Murabaha Financing Agreement (MMFA) Its an agreement between the client and the Bank whereby the client agrees to purchase goods from the Bank from time to time as per the terms and conditions of this agreement; This is an over all facility agreement under which various Sub-Murabahas may be executed from time to time; Hence it needs to be signed once at the time the facility is sanctioned.  Agency Agreement Through this agreement, the Bank appoints customer its agent to select and procure specified goods for the Bank; This agreement needs to be signed once between the client and the bank to cover the specified agency period.The disbursement of funds is done under this agreement; The customer should define a comprehensive list of assets and commodities that he may procure during the course of business from time to time;  Order Form This document is executed at the time of each sub-Murabaha request i.e. each time when the customer requires Murabaha for purchase of assets; Through this document customer requests the bank to purchase the assets from the supplier and undertakes that it will purchase the assets from the bank once the bank acquires them from the market; The customer also undertakes to compensate for the actual loss the bank may suffer in case that he fails to purchase the assets from the bank;  Declaration & Murabaha Contract This is the most important part of the Murabaha process.; Declaration is to be signed by the customer immediately after the purchase of goods as Bank’s agent but before the actual consumption; This document establishes the actual sale transaction, i.e. transfer of ownership of goods from the Bank to the customer; At this stage the specific details of the assets must be known i.e. quantity, quality, cost etc.; Purchase Evidences in the form of bills, sale invoice, sales tax invoice must be furnished along with the Declaration specifying the full details of the goods purchased; The cost of goods must be inclusive of all cost including sales tax, transportation and handling etc. Proper timing of declaration is extremely important especially in cases of perishable or immediately consumable commodities. Murabaha price (Cost of Goods + Profit) should be determined at this stage and stated clearly in the Declaration;  Payment Schedule The Payment Schedule specifies the amount that the Client will make from time to time or at once towards the payment of Murabaha price. This shall be executed after the execution of Declaration. The dates mentioned in the schedule corresponds to the day when the payment becomes due on the client; Risk Management in Murabaha  Risk Dimensions Islamic Banks also face Additional asset risk Greater fiduciary risks Greater legal risk; Banking Risks Credit Prisingrisk Liquidity Market Solvency ForeignExchange Operational 54/25  Risks in Murabaha Process Order Form Agency Customer Bank Customer Authorization Purchase Risk of delayed delivery Order Goods Goods Bank Customer Supplier Declaration Delivery Physical Risk of destruction of goods Risk of default Inspection Murabaha Payment Customer Bank Customer Contract Maturity Risk of breach of promise Risk of delay in payment to purchase Sale Price, Payment date etc. agreed  Legal and Shari’a Risks Legal and Shari’a compliance risk: Completeness of Legal documentation for various contracts Adherence to AAOIFI Shari’s standards Role of Shari’a supervisory boards/ advisers in mitigating Shari’a risk; Title of assets transferred to the customer at the time of purchase Usually the customer then provides same or other assets as collateral. Shariah supervision on different stages Role of purchasing department is essential while customer is taking from various institutions banking Murabaha facility; Murabaha Exercise & Calculations Contents ◆Murabaha flow chart; ◆Price payment options; ◆Calculation examples; ◆Exercise; ◆Case studies; ◆Conclusion; ◆Q & A; 2 Flow chart of Murabaha Murabaha Agreement Agency Agreement Order Form Purchase To agent (A/C Credit) Payment of Purchase Price Direct to supplier (DD/PO) Possession Offer & Acceptance Payment at maturity Payment in installments Payment of Murabaha Price Payment in equal installments  Prices payment options ◆Payment of Murabaha price can be structured in the following ways: – Spot payment Murabaha; – Credit Murabaha with payment in installments; – Credit Murabaha with full payment on due date; ◆Therefore, deferred price is not a necessary element of Murabaha sale; ◆Murabaha and deferred payment sale are two independent types of sales which can and cannot happen together; – Murabaha = cost disclosed sale; – Deferred sale = price is not paid on spot (paid in installments or at maturity);  Calculation of Cost & Profit in a Murabaha (Example 01) Bullet Payment at the end of tenure Financing Amount Rs. 100 Mn Profit Rate (IRR) 16% p.a. Tenure: 1 year Payment of Murabaha Price Bullet payment Cost 100 Mn Profit Rs 16 Mn (100 x 16%) Contract Price (Cost + Profit) Rs 100 Mn + 16 Mn Murabaha Selling Price (for declaration on Jan 01) Rs 116 Mn (100 + 16) Payment of Price (on 31st Dec) Rs 116 Mn  Calculation of Cost & Profit in a Murabaha (Example 02) Payment in unequal installments Financing Amount: Rs. 100 Mn Profit Rate (IRR): 16% p.a. Tenure: 1 year Payment of Murabaha Price 4 unequal installments Cost 100 Mn Profit Rs 16 Mn (100 x 16%) Contract Price (Cost + Profit) Rs 100 Mn + 16 Mn Murabaha Selling Price (for declaration on Jan 01) Rs 116 Mn (100 + 16) Payment of Price (on 31st Dec) Rs 4 Mn (=0.16/4*100) March 31 Rs 4 Mn (=0.16/4*100) June 30 Rs 4 Mn (=0.16/4*100) Sept 30 Rs 104 Mn (=100+4) Dec 31 Calculation of Cost & Profit in a Murabaha (Example 03) Payment in equal installments Financing Amount: (Jan 01) Rs. 100 Mn Profit Rate (IRR): 16% p.a. Tenure: 1 year Payment of Murabaha Price 4 equal installments Cost 100 Mn Profit Rs 10.2 (based on n=4, r=4%, PV=100) Contract Price (Cost + Profit): Cost + Profit = Rs 100 + 10.2 Murabaha Selling Price (declaration on Jan 10): Rs 110.2mn (Jan 10) Payment of Price (on 31st Dec) Rs 27.55mn - March 31 Rs 27.55mn - June 30 Rs 27.55mn - Sept 30 Rs 27.55mn - Dec 31 7 Exercise Exercise Financing Amount Rs. 40 Mn Profit Rate (IRR) 09% p.a. Tenure: 6 months Payment of Murabaha Price Bullet payment Cost Profit Rs. Mn ( x %) Contract Price (Cost + Profit) Rs. Mn + Mn Murabaha Selling Price (for declaration on Rs. Mn ( + ) ) Payment of Price (on / [month]) Rs. Mn 8 Case studies Murabaha cases ◆Case A: Local Purchase: – Bank: First Islamic Bank; – Clients Name: M/s ABC & Co; – Purpose of Murabaha: Purchase of Raw Cotton & Yarn; – Murabaha Financing Limit: Rs: 5,000,000/-; – Profit Rate (IRR): 10% p.a. – Tenure: 120 days – Stage 1: ► MMFA / Agency Date: January 01, 2015; ► Order Form Date: January 09, 2015; ► Order Form Amount:PKR: 1,000,000/-;  Murabaha cases – Stage 2: ► Disbursement Date: January 10, 2015; ► Disbursement Amount: PKR 1,000,000/-; ► Purchase of Goods : Jan 11, 2015; ► Declaration submitted to bank: January 12, 2015 (with Purchase evidence –PE); – Stage 3: ► Cost of goods purchased: PRK 1,000,000/-; ► Profit Amount ► Contract Price : PKR 32, 877/- (1,000,000 x [10% /365] x 120); : Total Cost + Profit: PKR 1,032,877/-; ► Declarationaccepted by the bank at Contract Price: January 12, 2015; ► Payment of Price: PKR 1,032,877/- (At Maturity on May 9, 2015); 11 Murabaha cases ◆Case B: Local Purchase (with purchase expenses): – Bank: First Islamic Bank; – Clients Name: M/s ABC & Co; – Purpose of Murabaha: Purchase of Raw Cotton & Yarn; – Murabaha Financing Limit: Rs: 5,000,000/-; – Profit Rate (IRR): 10% p.a.; – Tenure: 120 days; – Stage 1: ► MMFA / Agency Date: January 01, 2015; ► Order Form Date: January 09, 2015; ► Order Form Amount:PKR: 1,000,000/-; – Stage 2: ► Disbursement Date: January 10, 2015;  Murabaha cases ► Disbursement Amount: PKR1,000,000/-; ► Purchase of Goods: Jan 11, 2015; ► Declaration submitted to bank: January 12,2015; – Stage 3: ► Cost of goods purchased: PRK1,000,000/-; ► Purchase expenses (freights etc): PKR 10,000/- (paid byAgent); ► Total Cost: PRK1,010,000/-; ► Profit Amount : PKR 32, 877/- (1,000,000 x [10% /365] x 120); ► Contract Price : Total Cost + Profit = PKR 1,042,877/-; ► Declaration accepted by the bank at Contract Price: January 12, 2015; ► Payment of Price: PKR 1,032,877/- (1,042,877/- less 10,000/-) - At maturity on May 9, 2015); Conclusion ◆Murabaha transaction are sensitive transactions and requires extreme care in execution; ◆A small mistake at any stage may convert Murabaha into an interest based loan; ◆It is the responsibility of each one of us to ensure that our Murabahas are executed in the best manner and the income derived is Halal in true letter and spirit; Q&A ‫زجامکاہللریخا‬