Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The profit marked-up may be fixed in lump-sum or in percentage of the cost price of the goods.

Key Features

  1. It is permissible for the Client to offer an order to purchase by the Institution particular goods deciding its specification and committing himself to buy the same from the Institution on Murabaha, i.e. cost plus agreed upon profit.
  2. It is permissible to make the promise binding upon the Client to purchase from the Institution, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
  3. It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the damages.
  4. It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt.  Mortgage / Guarantee/ Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement..
  5. Stock and availability of goods is a basic condition for signing a Bai-Murabaha Agreement. Therefore, the Institution must purchase the goods as per specification of the Client to acquire ownership of the same before signing the Bai-Murabaha agreement with the Client.
  6. After purchase of goods the Institution must bear the risk of goods until those are actually sold and delivered to the Client, i.e., after purchase of the goods by the Institution and before selling of those on Bai-Murabaha to the Client buyer, the Institution shall bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the Institution of the defects, that means, if the goods are damaged, Institution is liable, if the goods are defective, (a defect that is not included in the release) the Institution bears the responsibility.
  7. The Institution must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.
  8. The Institution shall sell the goods at a higher price (Cost + Profit) to earn profit. The cost of goods sold and profit mark-up therewith shall separately and clearly be mentioned in the Bai-Murabaha Agreement. The profit mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no circumstances, the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc.
  9. The price once fixed as per agreement and deferred cannot be further increased.
  10. It is permissible for the Institution to authorize any third party to buy and receive the goods on Institution’s behalf. The authorization must be in a separate contract.

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