Murabaha Agreement Definition

Sometimes a financial services provider indirectly participates in a Murabaha facility using conventional credit documents. Over the past twenty years, Islamic finance players in the UK have worked to attract conventional banks and the murabaha form of financing is generally used instead of loans in different sectors. For example, consumers use murabaha to purchase household appliances, cars or real estate. Companies use this type of financing to purchase machinery, equipment or raw materials. Murabaha is also often used for short-term trade, such as issuing letters of credit for importers. In response to those who have doubts about the validity of Murabah`s sales to buyers, we will point out this: for example, let`s say that a manufacturer wants to buy $100,000 worth of wood, but that it does not have enough money. The manufacturer went to the bank and signed an agreement to buy the wood from the bank at a cost ($100,000) plus profits (perhaps 20 percent of the contract amount, or $20,000). A murabaha credit is issued in the name of an applicant (importer). The bank that issues the accreditation agrees to pay a sum of money in accordance with the conditions described in the accredited. Since the bank`s solvency replaces that of the applicant, the payment is guaranteed to the recipient (exporter).

This will benefit the exporter, as the bank assumes the risk of payment. Under the murabaha Treaty, the importer is required to reimburse the bank for the costs of the goods plus a premium. An example of a Murabaha contract is that Adam approaches a Murabaha bank to finance the purchase of a $10,000 cash-only-Automobiles car. The bank agreed to buy the “Cash-Only-Automobiles” car for $10,000, and then sell it to Adam for $12,000, which Adam will pay in equal increments over the next two years. A – The problem of the insolvency of Islamic banks has become very serious. In the interest-based credit system, interest rates continue to rise automatically in the event of a late payment, which is a deterrent against defaults. But in the case of the Islamic bank, no additional charges can be imposed after the due date. As a result, some quarters suggest that defects be blacklisted so that the fear of being blacklisted can serve as a deterrent against intentional insolvency. It is an agreement reached on the basis of opportunity that is not inadmissible in Sharia law. Even if this agreement is not explicitly mentioned in the Murabahah agreement, the government can act accordingly. However, this should only be done in cases of voluntary late payments, but if the debtor has fallen into a genuine severity that has not allowed him to pay on time, he must be given a break, as the Holy Quran expressly mentions. In addition, this penalty should not be exercised in cases where the debtor paid shortly after the due date.

It is therefore desirable that the blacklist be used after a considerable period of time after the due date to determine whether the delay is intentional and without any real cause. The fact that there is no penalty if Adam responds to his payments simply means that the amount of interest in Murabaha`s contract is set at $2,000. [23] This amounts to a legal “iyal” or “turn” to defeat the intent of Sharia law. [54] In the Murabaha agreements, a commodity is sold at a cost plus profit, and buyers and sellers know the costs and profits. In fact, this product is a kind of trade finance instrument used by Islamic banks. A – There does not appear to be any legal obstacle to the acquisition of shares of the bank and then to their sale to a third party through Murabahah, if the company`s bare values do not exceed their material value, and provided that the company`s activity is in no way involved in illicit products, such as wear, or narcotics or pigs or other. A – The sale of services by Murabahah, as foreseen in the question, is not legal.

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