24 issues in murabahah financing conclusions 1

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24 Issues in Murabahah Financing
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Conclusions 1. Murabahah is not a mode of financing in its origin. It is a simple sale on cost-plus basis. However, after adding the concept of deferred payment, it has been devised to be used as a mode of financing only in cases where the client intends to purchase a commodity. Therefore, it should neither be taken as an ideal Islamic mode of financing, nor a universal instrument for all sorts of financing. It should be taken as a transitory step towards the ideal Islamic system of financing based on Musharakah or Mudarabah. Otherwise its use should be restricted to areas where Musharakah or Mudarabah cannot work. 25 Issues in Murabahah Financing
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Conclusions 2. While approving a Murabahah facility, the sanctioning authority must make sure that the client really intends to purchase commodities which may be subject-matter of Murabahah. It should never be taken as merely a paper-work having no genuine basis. 3. No Murabahah can be effected for overhead expenses, paying the bills or settling the debts of the client, nor can it be effected for purchase of currencies. 4. It is the foremost condition for the validity of Murabahah that the commodity comes in the ownership and physical or constructive possession of the financier before he sells it to the customer on Murabahah basis. 26 Issues in Murabahah Financing
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Conclusions 5. The best way to effect Murabahah is that the financier himself purchases the commodity directly from the supplier and after taking its delivery sells it to the client on Murabahah basis. Making the client agent to purchase on behalf of the financier renders the arrangement dubious. For this very reason some Shariah Boards have forbidden this technique, except in cases where direct purchase is not possible at all. Therefore, the agency concept should be avoided as far as possible. 6. If in cases of genuine need, the financier appoints the client his agent to purchase the commodity on his behalf, his different capacities (i.e. as agent and as ultimate purchaser) should be clearly distinguished. 27 Issues in Murabahah Financing
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Conclusions 7. Two different prices for cash and credit sales are allowed on condition that either of the two options is specifically elected by the customer. Once the price is fixed, it can neither be increased because of late payment, nor decreased on earlier payment. 8. In order to assure that the purchaser will pay the price promptly, he may undertake that in case of default, he will pay a certain amount to the charitable fund maintained by the financing institution. 9. In case of earlier payment, no rebate can be claimed by the client. However, the institution may at it own option, forego some part of the price without making it a pre-condition in the agreement. 28 Issues in Murabahah Financing
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Conclusions Murabahah is a border-line transaction and a slight departure from the prescribed procedure makes it step in the prohibited area of interest-based financing. Therefore this transaction must be carried out with due diligence and no requirement of Shariah should be taken lightly. 29 Issues in Murabahah Financing
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