Murabahah (Cost Plus)

Definition : Technically, it is a sale of commodity for the price at which the seller has purchased it, with the addition of stated profit known to both the buyer and seller.

1. Cost price is known

2. Profit is known

Modus Operandi

1. The Customer identifies the goods and requests the Bank to purchase the goods. The Bank appoints the Customer as its agent to purchase the required goods on its behalf.

2. Customer purchases the goods from the Supplier on behalf of the Bank.

3. The Bank settles the purchase price.

4. Supplier supplies the goods to Customer.

5. The Bank sells the goods to Customer at a price comprising of cost and profit margin known as selling price on deferred payment basis.

6. The Customer settles the Bank‘s selling price.

Checklist

1. Essential Elements

• Buyer
• Seller
• Object of Contract / Merchandise
• Price
• Contract (Offer and Acceptance)

2. Necessary Conditions

For Buyer & Seller

• Capable of accepting responsibilities
• Of sound mind.
• Attains the age of puberty (matured).
• Intelligent.
• Not restricted from dealing in business transactions
• Not a bankrupt.
• Not a "safih" (prodigal/an extremely extravagant person)
• Not being forced to enter into a contract

Object of Contract / Merchandise

• Must be in existence at the time of sale.
• The seller must own the object of sale and it is in his/her possession when the transaction takes place.
• The object of sale must be a property of value and of pure substance (halal).
• The delivery of the object of sale must be certain and is not by chance.
• The object of sale is known to the seller and buyer.

Price

• The price must be made known to the buyer and the type of currency is specified.
• The cost price and the profit margin must be made known to the buyer. The mere mention of the total selling price is not sufficient.
• The original price is fungible (mithli).
• The price must be determined and agreed by both parties.
• A deferred payment sale is allowable provided that:

- The tenor or period of payment is specified.

- The tenor would be effective from the date the object/merchandise is delivered to the buyer.

Contract (Offer & Acceptance)

• In definite and decisive language.
• Acceptance must be consistent with the offer made by the seller.
• Offer and acceptance must be made at the one and the same meeting.

 Application

• Murabahah Working Capital Requirement
• Murabahah Letter of Credit
• Murabahah Trust Receipt
• Murabahah Bankers Acceptance
• Murabahah Securitisation
• Murabahah Islamic Card (Debit Card vs. Credit Card vs. Charge Card e.g. Jordan Purchasing Card)

Sources:  Islamic Banking Handbook, First Edition April 2010, Institut Bank-Bank Malaysia,pp. 59-61.