This document outlines key aspects of Murabahah financing provided by microfinance institutions (MFIs). It defines Murabahah as a sale with disclosed costs and profit. For MFIs, it involves the institution purchasing an asset for a customer and reselling it to earn a profit. The process involves several steps: signing agreements, the customer acting as an agent to purchase goods, the MFI disbursing funds and taking possession, and the customer making a deferred payment offer that is accepted. Some issues that can arise include lack of evidence for purchases, delays in customer declarations, and pricing matters. Addressing these helps ensure Shariah compliance in MFI Murabahah transactions.

2. Murabahah
Abdul Samad
AlHuda CIBE

3. Presentation Outline






This module will highlight the following
aspects of Murabaha:
Step by Step Murabaha Financing
Documentation
Profit Calculation
Issues
Conclusion

4. Murabaha - Definition /Introduction



In literary terms Ba’y Murabaha means “sale on
profit”
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

5. MFI Murabaha
The product of Murabaha that is being
used in MFI MFIing as a mode of finance
is something different from the Murabaha
used in normal trade.
 This transaction is concluded with a prior
promise to buy, submitted by a person
interested in acquiring good through the
institution.


6. MFI Murabaha



It is a contract wherein the institution,
upon request by the customer, purchases
an 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.
It is called Murabaha to the purchase
order.
It is a bunch of contracts completed in
steps and ultimately meet the financial
needs of the client.

7. Scope of Murabaha
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
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As it is a kind of sale, there must be a seller
and buyer and something 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 need of the client.
It is fixed price sale and normally is done for
short term.
The transaction can be used in order to meet
the working capital requirement however it
cannot be used to meet liquidity requirements .

8. Step by Step Murabaha
Financing
Client and MFI sign an Agreement to
enter into Murabaha (MMFA).
MFI
Agreement to
Murabaha
Client

9. Step by step Murabaha Financing
Client appointed as Agent to purchase
goods on MFI’s behalf. In this case, the
concerned branch Manager will explain
the appointment of client as an Agent,
which will be checked by the Shariah
Advisor.
MFI
Agency
Agreement
Client

10. Step by step Murabaha Financing
MFI gives money to agent/supplier for
purchase of goods.
MFI
Client
Agreement to
Murabaha
Agency
Agreement
Disbursement to the agent or supplier
Supplier

11. Step by Step Murabaha
Financing
The agent takes possession of goods on
MFI’s behalf.
Transfer of Risk
MFI
Vendor
Delivery of
goods
Agent

12. Step by Step Murabaha
Financing
Client makes an offer to purchase the goods
from MFI through a declaration.
MFI
Client
Offer to
purchase

13. Step by step Murabaha Financing
MFI accepts the offer and sale is concluded.
Murabaha Agreement
+
Transfer of Title
MFI
Client

14. Step by step Murabaha Financing
Client pays agreed price to MFI according
to an agreed schedule. Usually on a
deferred payment basis (Bai Muajjal)
MFI
Payment of Price
Client

15. Steps Of MFI Murabaha
MOU
↓
Order Form
↓
Agency Agreement
↓
Purchase
↓
Payment of Purchase Price‌
↓
Possession
↓
Offer and Acceptance
(Declaration)
↓
Payment of Murabaha Price

16. Murabaha Documentations
There are a number of documents involved
in a Murabaha financing transaction. The
most essential of these documents are:

Master Murabaha Facility Agreement

Agency Agreement

Order Form

Description of assets

Declaration

Summary Payment Schedule

17. ISSUES
RELATED TO
MURABAHA

18. Issues Related To Murabaha
Issue
1.

Solution
Filling/Signing of All  Shariah Compliance officer
should physically check such
Documents
irregularity leads to nonSimultaneously
compliance
In certain transactions, transaction.
the MFI obtained the
complete set of signed
Murabaha
transaction
documents from the
customer before actual
execution of transaction.
of
the

19. EVIDENCE OF PURCHASE
Issue
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
Solution
The MFI should perform some
alternative procedures in order to
conform the bonafides of the
execution of transaction. e.g. To
obtain Gate pass, Weighbridge
slips Stock record etc.
In certain transactions
MFIs do not obtains
sufficient/appropriate
evidences of purchase
and delivery of goods.

Due to certain reasons
the
MFI
makes
purchases in the name
of the customer and the
invoices and other title
documents are in the
name of the customer.

It is recommended that in such
cases of Murabaha, the MFI
should make payment directly to
the suppliers and physical surveys
of the goods should be performed
on a test basis. Evidence of receipt
of goods should also be obtained.

20. PHYSICAL VERIFICATION OF
GOOD
ISSUE
3. Generally the MFI takes the
constructive possession, while the
customer actually receives the
delivery of the goods. There is risk
that Murabaha transaction may be
executed prior to the procurement
of goods, which will render the
Murabaha transaction as being
mere financing rather than trading.
Solution
1.
2.
Keeping in
view the
issue physical surveys of
the goods should be
performed on a test
basis.
As an alternate, evidence
of receipt of goods
including
third
party
evidence
should
be
ensured.

21. DELAYED DECLARATIION
Issue
Solution
In certain transactions MFIs
receive declaration of the
purchased
goods
after
significant delay. So there is
risk that goods might already
have been used/sold by the
customer.
Murabaha transaction should
be executed as soon the
goods purchased by the
customer.

22. ABSENCE OF DATES ON
DECLARATION & INVISES
Issue
Solution
Absence of date on invoices
and declaration may arise a
question with regard to the
permissibility or otherwise of
the
Murabaha
sate
transaction.
No invoices with out date
shall be accepted and the
management should remain
vigilant
to
avoid
such
weaknesses.

23. DIFFRENCE IN QUANTITIES
Issue
Solution
Difference in quantities of
commodity being purchased
under Murabaha as per
Declaration and the invoices
creates a conflict within
Murabaha documentation.
1.
2.
3.
The
quantities
as
per
“Declaration”
should
be
similar to that of invoices
presented
unless
a
transaction
involves
joint
purchases with customer.
Where transaction involves
joint purchases, the client
must give a letter inducting
clearly the amount purchased
for himself.
Purchases of shares are a
good example of such case.

24. DISCOUNTS IN MURABAHA
Issue
It is a general practice, e.g.
in Pharmaceutical industry
that discounts are awarded
to the suppliers at the end of
the year.
The MFI generally do not
claim any discounts in this
regards at the end of the
year.
Solution
The MFI should ensure
discounts (if any) available
from supplier should be
transferred to it.

25. REBATE
Issue
Solution
In certain cases the MFI
promises to gives rebate
to the customer if the
customer settles the
transaction before the
actual repayment date.
The MFI should not
agree to give rebate to
the
clients
in
the
beginning of transaction
and in every case of
rebate, MFI should refer
to Shariah Advisor.

26. PRICING IN MURABAHA
Issue
In most of the cases of
import Murabaha, the MFIs
do not consider custom duty,
LC charges etc in their
pricing mechanism and the
customer borne all these
charges.
Solution
These charges related to the
ownership of the asset and
should be borne by the MFI
instead of the customer. The
MFI may add these charges
in the cost of Murabaha
asset.

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