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In some cases the clients sign the murabahah

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In some cases, the clients sign the Murabahah documents merely to obtain funds naming a fictitious commodity to satisfy the requirements of formal documentation. 20 Issues in Murabahah Financing
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Some Basic Mistakes in Murabahah Financing All necessary steps must be taken to confirm that the transaction is genuine. For example: 1. Instead of giving funds to the customer, the purchase price should be paid directly to the supplier. 2. If it becomes necessary that the client is entrusted with funds to purchase the commodity on behalf of the financier, his purchase should be evidenced by invoices or similar other documents which he should present to the financier. 3. Where either one of the above two requirements is not possible to be fulfilled, the financing institution should arrange for physical inspection of the purchased commodities. 21 Issues in Murabahah Financing
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Some Basic Mistakes in Murabahah Financing In some cases, sale of commodity to the client is effected before the commodity is acquired from the supplier. This mistake is invariably committed in transactions where all the documents of Murabahah are signed at one time without taking into account various stages of the Murabahah. Some institutions have only one Murabahah agreement which is signed at the time of disbursement of money, or in some cases, at the time of approving the facility. This is totally against the basic principles of Murabahah. Shariah Boards check such mistakes and demand compliance regularly. 22 Issues in Murabahah Financing
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Some Basic Mistakes in Murabahah Financing International commodity transactions are often resorted to for liquidity management. Some Islamic banks feel that these transactions, being asset- based, can easily be entered into on Murabahah basis. They ignore the fact that the commodity operations as in vogue in the international markets, do not conform to the principles of Shariah. In many cases, they are fictitious transactions where no delivery takes place. The parties end up paying differences. In some cases, there are real commodities but they are subjected to forward sales or short sales which are not allowed in Shariah. 23 Issues in Murabahah Financing
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Some Basic Mistakes in Murabahah Financing Some financial institutions effect Murabahah on commodities already purchased by their clients from a third party. This is again a practice never warranted by the Shariah. Once the commodity is purchased by the client himself, it cannot be purchased again from the same supplier. If it is purchased by the bank from the client himself and is sold to him, it is a buy-back technique which is not allowed in Shariah, especially in Murabahah. In fact, if the client has already purchased a commodity, and he approaches the bank for funds, he either wants to set-off his liability towards his supplier, or he wants to use the funds for some other purpose. In both cases an Islamic bank cannot finance him on the basis of Murabahah.
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