Please enable JavaScript.
Coggle requires JavaScript to display documents.
Murabahah for Purchase Order (Transaction Structure (mPO, Customer place…
Murabahah for Purchase Order
Characteristics
Sale of specified goods
cost of good plus mark up profit is disclosed and agreed
a promise (waad) is made by the purchaser to the bank to purchase the items
Promise to purchase may be binding or non binding
Transaction Structure
Customer place order with islamic Bank to purchase goods with the promise ( may be binding or non binding)
Islamic Bank purchase and pays for the goods form the vendor
Islamic Bank executes a murabaha contract of sale with the customer and delivers the goods
The customer pays the goods on an installment/cash basis to the bank
Risk
Business Risk
Holding of inventory of acquired goods in the event that the customer fails/cancel the purchase
Risk can be mitigated by accepting Hamish Jiddiyah (security deposit or Urboun)
Opportunity loss, funds could be used for other business
Shariah non-compliance
No possession of the asset purchased by the bank
Bank only extend cash rather than commodity, which results in exchange of money for money with interest
The asset is sold to a customer before the bank purchases it from the vendor/developer
Possibility that the customer already made a contract with the vendor to acquire the items, and approach the bank for financing without terminating the previous contract.
bank is actually providing cash with interest, since bank does not initially own the property/item
The original price or markup has not been disclosed to the customer
The asset transacted or collateral used is Shariah non compliant
Credit Risk
Customer may default in the payment if pay in installments
Market Risk
The price of items,commodity may change before transaction is completed
In the case of non binding agreement, If the price reduced after bank bank buys the commodity and the customer decided not to purchase the commodity, the bank will incur a loss
Market price of items decreased during the term and the customer defaulted before the term completed
