2. CONTENT
DEFINITION
DEFINITION
EVIDENCE
EVIDENCES PILLARS
CONDITION OF MURABAHAH
PILLARS
CONDITION OF PROFITS
CONDITION
APPLICATION OF MURABAHAH
ISSUES
APPLICATIONS
2
3. DEFINITION
Literally:
DEFINITION From word al-ribh ( ) which means increase in capital or
profit of trading
EVIDENCES Technically
Sale in which the mark up is disclosed to the purchaser as per
PILLARS
the seller’s purchase price for a trust-sale for a certain specific
asset.
Murabahah is a type of contract, a form of sale, where
CONDITION
the seller expressly mentions the cost of the sold
commodity he has incurred, and sells it to another
ISSUES person (the buyer) by adding some profit or mark-up
thereon.
APPLICATIONS Mechanism has to be conducted with complete
sincerity/trust by the seller/financier by stating the cost
price of the purchase and the total profit incurred clearly
and truthfully. Hence, a sale based on trust (amanah).
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4. EVIDENCES
Al-murabahah is a legitimate contract in Islam.
DEFINITION
Majority of fuqaha comprising the sahabah
EVIDENCES
(companion of the prophet), the tabien (followers of
the sahabah) , and imam of the mazhab considered
PILLARS al-Murabahah as a permissible contract based on
rukhsah principle.
CONDITION Al-Quran
ISSUES
APPLICATIONS
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5. EVIDENCES
Hadith
DEFINITION
Some scholars made murabahah analogous to a form of
sale called Tawliyyah (sale at purchase price without
EVIDENCES
making profit)
It was reported that when Prophet (s.a.w) was
PILLARS
preparing for hijrah to Madinah, Abu Bakar bought 2
camels for the journey. The Prophet (s.a.w) said to Abu
CONDITION
Bakar: Sell to me (at cost without profit) one of them.
Abu Bakar said: It is yours for nothing. The Prophet
ISSUES (s.a.w) said: I would not take it without price.
APPLICATIONS
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6. PILLARS OF AL-MURABAHAH
1. Seller
DEFINITION
2. Buyer
EVIDENCES 3. Merchandise or goods
4. Price
PILLARS
5. Sighah: Offer (Ijab) and Acceptance (Qabul)
CONDITION
ISSUES
APPLICATIONS
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7. FLOWS OF AL-MURABAHAH
DEFINITION
Payment of purchase price
Payment of purchase price + Premium
EVIDENCES
PILLARS
Suppliers of
Goods
Islamic Bank Customer
CONDITION
ISSUES
Sale of asset Sale of asset
APPLICATIONS
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8. CONDITIONS OF AL-MURABAHAH
5 important elements for condition of al-
DEFINITION
murabahah:
EVIDENCES
1. Product and selling price
2. Contracting parties
PILLARS 3. Offer and acceptance
4. No riba trading shall be involved
CONDITION
5. The initial contract must be valid
ISSUES
APPLICATIONS
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9. CONDITION OF AL-MURABAHAH
1. Product and selling price
DEFINITION
Product must be clearly defined including its type, quantity
and other descriptions.
EVIDENCES
Selling price- its cost and profit must also be disclosed clearly
and truthfully.
PILLARS Act of concealing cost price and/or margin of profit render
transaction null and void.
CONDITION
2. Contracting parties
Seller/ financier – responsible for supplying the product
ISSUES ordered by the buyer.
Buyer/ customer – obligated to pay for the product he
APPLICATIONS purchased according to agreed terms of the agreement.
Both must be adults, rational, intelligent and can be held
accountable.
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10. CONDITION OF AL-MURABAHAH
3. Offer and acceptance
DEFINITION It shall contain the two important elements mentioned i.e..
Cost price and rate of profit.
The original price must be fungible i.e.. The price at which the
EVIDENCES seller obtained the goods must be measured by weight,
volume or number of homogeneous goods.
PILLARS 4. No riba trading shall be involved.
Products traded cannot be paid by barter system from ribawi
items prohibited by the Prophet (s.a.w)
CONDITION i.e.. Gold for gold, silver for silver, wheat for wheat, flour for
flour, dates for dates and salt for salt and barley for barley
unless weight, measurement and the calculations are equal.
ISSUES
Also forbidden egg. Selling 100kg of good flour at the price of
120kg of sub quality flour – constitutes riba.
APPLICATIONS 5. The initial contract must be valid.
The traded item or property must be lawfully owned by the
seller according to Shariah requirements.
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11. CONDITIONS OF PROFIT
The amount of profit charged can be in several
DEFINITION
form:
1. Ratio : Charge RM100 for every RM1000
EVIDENCES
2. Percentage : Charge 15% profit from cost
PILLARS 3. Fixed amount : Charge fixed amount of money
Minimum amount of profit recommended is the
CONDITION amount that can sufficiently cover payment of
business zakat (2.5%) and other expenses bear by
ISSUES the trader
No limit to the amount of profit the traders can
APPLICATIONS
legitimately charge the customers since no evidence
that specifies any amount permitted for the traders
to do so.
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12. NON-SPECIFICATION OF PROFIT RATE IN TRADE
Reason to the non-specification of amount of profit in trade:
DEFINITION 1. Limitation of profit rate allowable is something against the rule
of fair and justice
2. Differences between types of goods that have fast circulation in
EVIDENCES
nature compared to product that have rather slow circulation or
slow demand; hence profit rate for the former should be
PILLARS different from the latter
3. Differences between traders sell product in small quantity than
those sell massive amount of product
CONDITION
4. Differences between traders deal in cash compared to those that
can accept credit or deferred payment
ISSUES 5. Differences between goods that considered necessity
(dharuriyyah) compared to complementary (hajiyyah) and
luxury (kamiliyyah) goods. Necessity goods should be charge
APPLICATIONS lower profit as it is needed item.
6. Differences between traders that easily acquire their product
from those that can only acquired it through difficult process.
Or traders that sell raw product compared to modified product.
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13. ISSUES IN MURABAHAH CONTRACT
Murabahah is trust based contract and everything
DEFINITION
should be disclosed including cost price and mode of
payment. There are several issues related to murabahah:
EVIDENCES
1. Rebate in the event of default
Issues is whether the bank must give rebate to the customer
PILLARS
in case of default or to give early settlement or not.
2. Disclosure of cost price
CONDITION
The seller obliged to disclose the actual cost; if the exact cost
cannot be ascertained or unknown, it is impossible to have
ISSUES murabahah contract
3. Use of the interest rate as a benchmark
APPLICATIONS
Many IFI do murabahah financing to determine profit ot
mark up on the basis of current interest rate using
conventional interest rate benchmark or rating
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14. APPLICATION
Islamic financial institutions aim to make use of bay
DEFINITION
al-Murabahah in circumstances where they will
purchase raw materials, goods or equipment etc.
EVIDENCES
and sell them to a client at cost, plus a negotiated
PILLARS
profit margin to be paid normally by installments.
Among others applications of contract of
CONDITION murabahah in Islamic banking are:
Murabahah financing
ISSUES Bank’s treasury product through murabahah
commodity
APPLICATIONS Issuance of sukuk murabahah
International trade financing
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15. MODERN APPLICATION
Tri-partied Murabahah
DEFINITION
Based on Murabahah lil-amir bisshira (Murabahah to
the purchase order) concept.
EVIDENCES
Widely applicable because used as one of financing
tools by Islamic banks worldwide.
PILLARS
Murabahah to the purchase orderer (MPO) for a pre-
agreed selling price, which includes a pre-agreed profit
CONDITION
mark-up over its cost price, this having been specified
in the customer's promise to purchase. The payment is
ISSUES
payable within a fixed future date in lump sum of by
fixed installments
APPLICATIONS
It is one of the usual practicalities adopted by the
Islamic banks in Malaysia for assets like car, house and
etc.
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16. TRI-PARTIED MURABAHAH
DEFINITION
Islamic Bank
EVIDENCES
PILLARS
2 4 3
CONDITION
ISSUES
APPLICATIONS Customers 1 Real Estate Agent/ Car Agent
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17. MODERN APPLICATION
Sukuk Murabahah
DEFINITION
Sukuk defined as trust certificate or participation
securities which grant the investor a share of an asset
EVIDENCES
along with the cash flows and risk commensurate with
such ownership.
PILLARS
Sukuk holder are entitled to shared in the revenues
generated by the sukuk assets and proceeds of the
CONDITION
realization of the sukuk assets.
ISSUES
APPLICATIONS
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18. SUKUK MURABAHAH
Sell
3
DEFINITION
Sell
1
EVIDENCES
Investor Murabahah Sukuk SPV
4
PILLARS Primary Subscriber Sukuk Issuer
5
Proceed Payment
CONDITION
ISSUES Sell 2
6 Murabahah
Sukuk
APPLICATIONS
Company In Need of
Secondary Market
Capital
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19. END OF CHAPTER
DEFINITION
EVIDENCES
PILLARS
CONDITION
ISSUES
APPLICATIONS
19
