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Introduction to Murabaha

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Introduction to Murabaha Version 2.0 Release Date: Jamad ul Thani 31, 1430 H June 25, 2009 Prepared By: Product Development and Shariah Compliance Department – PowerPoint PPT presentation

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Title: Introduction to Murabaha


1
Introduction to Murabaha Version
2.0
Release Date Jamad ul Thani 31, 1430 H June
25, 2009 Prepared By Product Development and
Shariah Compliance Department
2
  • Murabaha 
  • Basic Rules of Murabaha
  • Step by step Murabaha Financing
  • Application of Murabaha

3
  • Murabaha is a particular kind of sale and not a
    financing in its origin.
  • Where the transaction is done on a cost plus
    profit basis i.e. the seller discloses the cost
    to the buyer and adds a certain profit to it to
    arrive at the final selling price.

4
  • The distinguishing feature of Murabaha from
    ordinary sale is
  • The seller discloses the cost to the buyer.
  • - And a known profit is added.

5
  • Payment of Murabaha price may be
  • 1) At spot
  • 2) In installments
  • In lump sum after a certain time
  • Hence, Murabaha does not necessarily imply the
    concept of deferred payment.

6
  • Basic rules for Murabaha financing
  • Asset to be sold must exist.
  • Sale price should be determined.
  • Sale must be unconditional.
  • Assets to be sold
  • a) Should not be used for un-Islamic purpose.
  • b) Should be in ownership of the seller at the
    time of sale physical or constructive.

7
  • Basic rules for Murabaha financing
  • Re- negotiation of price and roll over of
    Murabaha are not permitted.
  • Discounting of Murabaha instruments is not
    permitted.

8
Step by step Murabaha Financing
9
  • 1. Client and bank sign an agreement to enter
    into Murabaha (MMFA).

10
2. Client appointed as agent to purchase goods on
banks behalf
11
3. Bank gives money to agent/supplier for
purchase of goods.
12
4. The agent takes possession of goods on banks
behalf.
13
5(a). Client makes an offer to purchase the
goods from bank through a declaration.
14
5(b). Bank accepts the offer and sale is
concluded.
15
6. Client pays agreed price to bank according to
an agreed schedule. Usually on a deferred
payment basis (Bai Muajjal)
16
Application of Murabaha
17
  • Purchase of raw material for meeting working
    capital needs of trade and industry.
  • Medium to long term requirements for purchase of
    land, building and equipment.
  • Trade finance products including imports, exports
    and bill purchase.
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