1. Sale Contract /Murabaha . Muhammad Najeeb Khan

2. CONTRACT IN ISLAM CONTRACT SUBJECT MATTER WORDING OF CONTRACT
CONTRACTORS
Non-restricted
Sane
Mature
Present
Unconditional
Non-contingent
Specified
Quantified

3. Law of Contract
Islamic Contract: It is connection between the offer and the acceptance in a manner that results the proper affects.
Offer
Acceptance
Subject matter

4. ISLAMIC SALE DEFINITION OF SALE(BAI)
NIBAF SALE CONTRACT
ISLAMIC SALE
DEFINITION OF SALE(BAI)
exchange of a thing of value with another thing of value with mutual consent.
the sale of a commodity in exchange of cash.

5. ISLAMIC SALE (1)-VALID SALE ( Bai Sahih)
NIBAF SALE CONTRACT
ISLAMIC SALE
(1)-VALID SALE ( Bai Sahih)
a sale is valid if all elements together with their conditions are present
elements of valid sale are
Contract ( Aqd )
Subject matter ( Mabe’e)
Price ( Thaman )
Possession or delivery ( Qabza )

6. CONTRACT ( Aqd ) Offer & Acceptance ( Ijab-o-Qobool) Oral ( Qauli )
NIBAF SALE CONTRACT
CONTRACT ( Aqd )
Offer & Acceptance ( Ijab-o-Qobool)
Oral ( Qauli )
Implied ( hukmi )
Buyer and seller ( Muta’aquadeen ) must be
Sane
Mature
Conditions of contract ( Sharaet-e-Aqd )
sale must be non-contingent
sale must be immediate
Contract or transaction (Aqd)
1.1Offer & acceptance (Ijab-o-Qobool): The term “Offer” means that one person proposes to either sell his commodity to another person or buy from him and “Acceptance” means that the person who has been offered gives his approval of the proposal. Offer and acceptance are always done in past tense eg. “I have sold” or “I have purchased” etc. There are two ways of doing it:
1.1.1 Oral (Qauli): By saying.
1.1.2 Implied (Isharaa): By indicating. This is of two types:
1.1.1(a) Credit Sale (Istijrar) for eg. settlement of the bill at the end of the month.
1.1.1(b) Hand-to-Hand Sale (Taati): Exchange of money with goods without uttering Ijab-o-Qobool for eg. procedure adopted in contemporary stores.
1.2 Buyer & seller (Muta’aquadeen): Both must be :
1.2.1 Sane : Should be mentally sound at the time of contract.
Mature : Should be adult, however, if minor, must understand

7. SOLD GOOD OR SUBJECT MATTER ( Mube’e )
NIBAF SALE CONTRACT
SOLD GOOD OR SUBJECT MATTER ( Mube’e )
Existing
Valuable
Usable
Capable of ownership/title
Capable of delivery/possession
Specific & Quantified
Seller must have title & risk
1.1 Existable
The subject matter of sale must be existing at the time of sale. Thus, a thing which has not yet come into existence cannot be sold. If a non-existent thing has been sold, even with mutual consent, the sale is void according to shari’ah. Eg. ‘A’ sells the unborn calf of his cow to ‘B’. The sale is void.
1.2 Valuable
The subject of sale must be a property of value. Thus a thing having no value according to the usage of trade eg. a leaf or a stone on a roadside cannot be sold or purchased.
1.3 Usable
The subject of sale should not be a thing which is not used except for a haram purpose, like pork, alcohol etc.
2.4 Capable of ownership/title
The subject matter should not be anything which is not capable of ownership/title for eg. sea or sky.
2.5 Capable of delivery/possession
For eg. an unconstructed building cannot be possessed since it is non-existent.

8. MURABAHA
Murabaha is a particular kind of sale where the seller discloses its cost and profit charged thereon.
The price in this sale can be both on spot and deferred.

9. Difference between Murabaha & Musawima
Murabaha is a particular kind of sale where the seller discloses its cost and profit charged thereon .
Musawima is a sale on agreed price without referring to the first price on which the seller has purchased

10. BANKING MURABAHA
It is a contract wherein the institution, upon request by the customer, purchases a asset from the third party usually a supplier/vendor and resells the same to the customer either against immediate payment or on a deferred payment basis.

11. BANKING MURABAHA It is called Murabaha to the purchase orderer .
It is a bunch of contracts completed in steps and ultimately suffices the financial needs of the client.
The sequence of their execution is extremely important to make the transaction Shariah compliant.

12. SCOPE OF MURABAHA
As it is a kind of sale, there must be a seller and buyer and some thing that is bought and sold . The institution is the seller and the client is buyer.
It cannot be used as a substitute for running finance facility , which provides cash for fulfilling various needs of the client.

13. SCOPE OF MURABAHA
It is a fixed price sale and normally is done for short term.
The transaction can be used in order to meet the working capital requirements however it cannot be used to meet liquidity requirements.

14. Step by Step Murabaha

15. Stage One (a) for Murabaha financing
1- Promise stage
Stage One (a) for Murabaha financing
1. Client approach the bank for facility through Murabaha.
Facility approved
Bank
Client
STEP BY STEP MURABAHA FINANCING
1.The client and the institution sign an overall agreement whereby the institution promises 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.
2.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.
3.The client purchases the commodity on behalf of the institution and takes possession as the agent of the institution.
4.The client informs the institution that it has purchased the commodity and simultaneously makes an offer to purchase it from the institution.
5.The institution accepts the offer and the sale is concluded whereby ownership as well as risk is transferred to the client.
All the above are necessary to effect a valid murabaha. If the institution purchases the commodity directly from the supplier it does not need any agency agreement.
Note: The most essential element of the transaction is that the commodity must remain in the risk of the institution during the period between the third and the fifth stage.
The above is the only way by which this transaction is distinguished from an ordinary interest-based transaction

16. Stage One (b) for Murabaha financing
1- Promise stage
Stage One (b) for Murabaha financing
1. Client and bank sign an agreement to enter into Murabaha.
Murabaha Facility Agreement
MOU
Bank
Client
STEP BY STEP MURABAHA FINANCING
1.The client and the institution sign an overall agreement whereby the institution promises 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.
2.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.
3.The client purchases the commodity on behalf of the institution and takes possession as the agent of the institution.
4.The client informs the institution that it has purchased the commodity and simultaneously makes an offer to purchase it from the institution.
5.The institution accepts the offer and the sale is concluded whereby ownership as well as risk is transferred to the client.
All the above are necessary to effect a valid murabaha. If the institution purchases the commodity directly from the supplier it does not need any agency agreement.
Note: The most essential element of the transaction is that the commodity must remain in the risk of the institution during the period between the third and the fifth stage.
The above is the only way by which this transaction is distinguished from an ordinary interest-based transaction

17. Stage One (c) for Murabaha financing
1- Promise stage
Stage One (c) for Murabaha financing
. Client submit the purchase requisition to the bank.
purchase requisition /Promise to the bank.
Bank
Client
STEP BY STEP MURABAHA FINANCING
1.The client and the institution sign an overall agreement whereby the institution promises 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.
2.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.
3.The client purchases the commodity on behalf of the institution and takes possession as the agent of the institution.
4.The client informs the institution that it has purchased the commodity and simultaneously makes an offer to purchase it from the institution.
5.The institution accepts the offer and the sale is concluded whereby ownership as well as risk is transferred to the client.
All the above are necessary to effect a valid murabaha. If the institution purchases the commodity directly from the supplier it does not need any agency agreement.
Note: The most essential element of the transaction is that the commodity must remain in the risk of the institution during the period between the third and the fifth stage.
The above is the only way by which this transaction is distinguished from an ordinary interest-based transaction

18. 2- Agency stage
2. Client appointed as agent to purchase goods on bank’s behalf
Bank
Client
Agreement to Murabaha
Agency
Agreement

19. Disbursement to the Supplier
2- Agency stage
Stage Two for Murabaha financing
. Bank gives money to supplier through client’s account for purchase of goods.
Agreement to Murabaha
Bank
Client
Islamic Bank
Agency Agreement
Disbursement to the Supplier

20. 3. Acquiring Possession Stage three for Murabaha financing
. Client purchases goods on bank’s behalf and takes their possession.
Client purchases goods and takes possession
Transfer of Risk
Vendor
Bank
Client

21. 4. Execution of Murabaha Stage four (a) for Murabaha financing
. Client makes an offer to purchase the goods from bank.
Bank
Client
Offer to purchase

22. 4. Execution of Murabaha Stage four (b) for Murabaha financing
. Bank accepts the offer and sale is concluded.
Murabaha
Agreement +
Transfer of Title
Bank
Client

23. 4. Execution of Murabaha Stage four (b) for Murabaha financing
. Client pays agreed price to bank according to an agreed schedule. Usually on a deferred payment basis (Bai Muajjal)
Bank
Client
Payment of Price

24. Murabaha GENERAL MECHANICS VENDOR ISLAMIC BANK CUSTOMER
Transfer of Title
Transfer of Title
VENDOR
ISLAMIC
BANK
Agreement
CUSTOMER
Payment of Purchase Price
Payment of Marked-up Price
The customer approaches the Bank with the request for financing
The Bank purchases and receives title of ownership from the vendor
The Bank makes payment to the vendor
The Bank transfers the title over to the customer upon payment
The customer makes payment up-front or on a deferred basis

25. STAGES OF MURABAHA 2. Agency Stage 3. Acquiring Possession
1. Promise Stage
2. Agency Stage
3. Acquiring Possession
4. Execution of Murabaha
5. After Execution of Murabaha

26. A- CREDIT APPROVAL (under Shariah perspective)
STAGES OF MURABAHA
PRIOMISE STAGE
A- CREDIT APPROVAL (under Shariah perspective)

27. CREDIT APPROVAL (under Shariah perspective)
Points to Be Considered While Approving Credit
It is essential that the transaction between two parties must be genuine , not fictitious.

28. CREDIT APPROVAL (under Shariah perspective)
Points to Be Considered While Approving Credit
The Institution must insure that the party from whom the item is bought is a third party and not the customer or his agent . In this manner the transaction can be saved from Bai Inah (Buy Back) which is not allowed in sharia.

29. B- Murabaha Facility Agreement
STAGES OF MURABAHA
PRIOMISE STAGE
B- Murabaha Facility Agreement
MOU

30. Murabaha Facility Agreement 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.

31. Securities Against Murabaha Price

32. C- Purchase Requisition
STAGES OF MURABAHA
PRIOMISE STAGE
C- Purchase Requisition

33. C- 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 that the goods are not already owned by the client.

34. STAGES OF MURABAHA
PRIOMISE STAGE
D- Promise to Purchase

35. D- 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.

36. G- PAYMENT OF MURABAHA Goods
STAGES OF MURABAHA
PRIOMISE STAGE
G- PAYMENT OF MURABAHA Goods

37. G- PAYMENT OF MURABAHA Goods
Advance payment can be made to the supplier.
It is advisable that Murabaha payment to be made directly to the supplier by the bank.

38. STAGES OF MURABAHA
2-AGENCY STAGE

39. 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.

40. AGENCY STAGE
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.

41. AGENCY STAGE
This is done by execution of Agency Agreement between the institution and the customer.
However according to Sharia Perspective it is preferable to appoint the Agent other then customer.

42. AGENCY STAGE
If goods are acquired from third party the execution of agency agreement will be between the institution & the third party..

43. TYPES OF AGENCY AGREEMENT
AGENCY STAGE
TYPES OF AGENCY AGREEMENT
SPECIFIC AGENCY AGREEMENT
When the purchase of commodity is not of
consistent nature.
GLOBAL AGENCY AGREEMENT
When the purchase of commodity is of

44. STAGES OF MURABAHA
3-ACQUIRING POSSESION

45. Acquisition Of Title & Possession of The Asset
1-Institution must take actual or constructive possession of the item .
The forms of taking delivery or possession of items 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.
Acquisition Of Title & Possession of The Asset

46. Acquisition Of Title & Possession of The Asset
2.Goods must exists at the time of execution of Murabaha.
If the above two are not fulfilled than the institution cannot execute Murabaha.

47. Acquisition Of Title & Possession of The Asset
Documentary evidence required at the time of possession before execution of Murabaha i.e. delivery challan, gate passes and sales tax invoices.

48. Physical Inspection Importance of Physical Inspection.
It is advisable that bank should appoint one person for physical inspection .Importance of Physical Inspection

49. 4- EXECUTION OF MURABAHA
STAGES OF MURABAHA
4- EXECUTION OF MURABAHA

50. Actual Murabaha Sale
OFFER & ACCEPTANCE

51. OFFER TO PURCHASE
The Customer will make an offer to purchase the goods acquired by him for Bank’s behalf mentioning the Offer Price .(Comprising Cost plus Bank’s Profit )

52. BANK’S ACCEPTANCE
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. .

53. RELATIONSHIP
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.

54. ISSUES IN MURABAHA

55. Rollover in Murabaha
Rescheduling is allowed but repricing is not allowed.
Rollover is also not allowed.

56. Risk Management IN
MURABAHA

57. Risk Dimensions Credit Liquidity Credit Credit Prising risk Banking
Risks
Credit
Liquidity
Credit
Prising risk
Market
Islamic Banks also face
Additional asset risk
Greater fiduciary risks
Greater legal risk
Foreign Exchange
Solvency
Operational

58. END OF PRESENTATION
JAZAKAMUALLAH