Murabahah Murabahah is a common mode of financing used by Islamic financial intuitions to finance their (Hanif 167). Despite the fact that the transaction is conducted by financial institutions, the profit from Murabahah is different from the interest in conventional loans. In the case of Murabahah, the seller mentions the cost of the good under transaction, and if the buyer is willing to purchase it, the buyer adds a mark-up on the cost to achieve a profit. The other difference between the profit from Murabahah and the interest from a conventional loan is that the bank purchases the item on a cost-plus-profit benefit and later resells it to the buyer (Hanif 169).
In this case, the banker discloses the cost of the item and the mark-up on the item. Instead of giving money to the borrower to buy an item, after which an interest is charged, the banker purchases the item on behalf of the buyer and sells it at a profit. From the Quran (30:39), interest on transactions is prohibited, since it does not increase the heavenly wealth of the individual involved, thus the need to state any profit from the Murabahah transaction before the transaction commences (Islamic Perspectives).
On the position of entering into a Murabahah transaction with a client who has already pain earnest money to the original order of the goods, the Dubai Islamic Bank (54) states that it is necessary and mandatory to include any prior contractual agreements between the two parties. This means that before a Murabahah transaction is entered into between the bank and the client, the client needs to disclose any and all agreements between him and the original supplier of the goods being ordered.
In this case, it is permissible to enter into a Murabahah transaction with a client who has paid earnest money (Hamish eljiddiyah) to the original supplier of the goods, provided that the client states all prior contractual relationships. Before a Murabahah contract is agreed upon, both parties in the agreement sign agreement where the banker agrees to sell the item and the buyer agrees to buy it from the banker (Usmani 25). According to Imam Malik (Fuqaha), all the parties in the Murabahah contract are legally bound by the contract that is signed to signal the commencement of the Murabahah agreement.
Imam Malik states that any misdirection or failure of commitment by either party to the contract is subject to legal proceedings (Usmani 25). Other Fuqaha scholars state that the agreement is a religious obligation, so both parties must fulfill the agreement. However, Imam Al Shafai (Fuqaha) states that the contract between the two individuals in the transaction is not binding, and the sale only concludes when the buyer accepts to take possession of the goods.
A Murabahah transaction cannot be securitized for creating a negotiable instrument to be sold and purchased in secondary market (Alsayyed 12). This is because, when a Murabahah transaction is made, the money and the good must be transferred at par value. In this case, the instrument in the transaction cannot be sold at a higher or lower price than the par value, and transacting a Murabahah paper with a third party cannot be sued to create a negotiable instrument. Works Cited Alsayyed, Nidal.
Shari’ah Parameters of Islamic Derivatives in Islamic Banking and Finance, 2009. International Sharia’s Research Academy For Islamic Finance (ISRA) Dubai Islamic Bank. Murabahah to the Purchase Orderer, 2011. Dubai Islamic Bank, Islamic Sharia Department. Hanif, Muhammad. Differences and Similarities in Islamic and Conventional Banking. International Journal of Business and Social Science, 2011. Vol. 2(2). Pp. 166-175. Islamic Perspectives. Riba in the Qur`an: A Closer Examination of Relevant Issues, 2012. Web. Accessed May 29, 2012. Available at: Usmani, Maulana. Murabahah, 2003. Accountancy. Com. pk.