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Murabaha Agency Agreement

April 11th, 2021 in by admin

In a murabaha sales contract, a customer asks a bank to buy an item on its behalf. The bank meets the customer`s requirement and establishes a contract specifying the cost and benefit of the item, the refund usually being made in installments. Since a fixed tax is levied in place of Riba (interest), this type of loan is legal in Islamic countries. Islamic banks are prohibited from claiming interest on loans in accordance with the religious principle that money is only a means of exchange and has no intrinsic value; Banks must therefore collect a flat fee for the continuation of day-to-day activity. (a) payment of the purchase price by the establishment to the supplier on the date of value does not result in a violation of an existing law or agreement; (b) security has been established, effectively perfected and supports the approval of this agreement; (c) the institution has received the other documents that it can reasonably require for the payment of the entrance fee; (d) no event or circumstance that, as a result of notification or expiry of the deadline or both, would not constitute a delay event occurs and continues or is likely, and the payment of the cost price should not lead to a delay incident; (e) the provision of an authentic and complete extract of all relevant elements of the minutes of a duly convened board meeting, at which the main documents are approved and the necessary authorizations for the conclusion, execution and delivery of the main documents, duly signed and authenticated by the person duly authorized for this purpose by the Board of Directors; (f) All fees, commissions and charges that the customer must pay at the establishment are received by the establishment. Bilal wants to buy a boat sold for $100,000 at Billy`s Boat Shop. To do so, Bilal would contact a Murabaha bank who would buy Billy`s Boat Shop for $100,000 and sell it to Bilal for $109,000 to pay in installments over three years. The amount Bilal pays is a fixed amount to a bank that owns the assets and there is no interest charge. If Bilal is late in payments, he does not have to pay any additional fees. The additional amount paid by Bilal above the entry price of the boat store is actually a 3% loan, but as it is offered as a fixed payment at no additional cost, it is authorized by Islamic law. The form of Murabaha financing is generally used instead of loans in different sectors.

For example, consumers use murabaha to purchase household appliances, cars or real estate. Companies use this type of financing to purchase machinery, equipment or raw materials. Murabaha is also often used for short-term trade, such as issuing letters of credit for importers. A murabaha credit is issued in the name of an applicant (importer). The bank that issues the accreditation agrees to pay a sum of money in accordance with the conditions described in the accredited.

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