Definition of Murabaha
Murabaha term in language, is basically making profit. In scholars’ terms, it is a sale over the principal amount by adding profit, or in other words it is a sale with principal and a certain profit. The feature of Murabaha is that the seller should mention to the buyer, the purchasing price of the commodity and amount of the profit added on it.
The pillars of Murabaha sale
Two contractors
Forms of Approval and Acceptance
Commodity subject to the contract
Terms of Murabaha Sale
Principal amount should be known by the second buyer, because the Murabaha is the selling with the principal plus the accumulated profit, and also being aware of the principal is a must for making the Murabaha genuine.
The profit amount should also be known since it is a part of the price, and knowing the price is a condition for making the sale acceptable according to Sharia’a terms.
Murabaha sale is acceptable according to Sharia’a terms only if the price unit is different in kind than the purchased commodity.
The first contract should be complete, otherwise, it violates the Sharia’s regulations.
Murabaha transaction it’s not allowed in gold, silver, or currencies. In the event that the murabaha is performed with those assets, the price will be paid in the contract board.
Definition of the Musawama
Musawama sale is a kind of sale in which, the Seller is not showing the principal amount (announced sale price is simply the cash selling price). The agreement between the bank and the vendor is based on the percentage of a discount rate that the bank shall get from the price of the commodity declared to the second buyer, which means the bank shall purchase the commodity from the vendor with a certain discount that would be considered as the amount of the bank profit and the customer shall effect the repayment with installments without any increase in the price.
The pillars of the Musawama
Two contractors
Forms of Approval and Acceptance
Commodity subject to the contract
Terms of Musawama
Determining the percentage of the profit that the bank will get from the seller.
Determining the payment period available with the installments.
Determining the type of the product to be sold.
Determining the duration of the agreement or the period of its validity.
The selling price between the bank and the merchant should remain unknown by the final buyer, as well as the profit margin.
According to the Sharia’a regulations, Musawama sale shall be accepted only if the Islamic Bank bought the commodity with a complete genuine contract from its owner and the bank should possess the commodity. Islamic banks may reduce their risk on the Musawama sale by purchasing the commodities with a limited period of time. If the bank fails to sell the commodity, the contract with the vendor might be terminated without any loss.
Definition of Ijara Tamweel (Lease to own)
Ijara in Sharia’a concept is an obligatory contract for benefit purpose in a certain period and a rental fee. The above mentioned Ijara is a new form of financing in a shape of leasing, to facilitate the purchasing of assets for the customer who are willing to own that without having the full amount in cash.
Application of Ijara in Islamic Banks
Ijara is applied in the Islamic banks as shown below;
The bank (the lessor) buys specific asset with the knowledge of the (the lessee).
The bank finances the purchase and ownership of the asset, then leases it with a medium or long-term lease contract and deliver it to the Lessee for the purpose of benefiting and using.
The rental payments are calculated as per the contract period financially covering;
Asset purchasing amount (or a part of it).
Suitable profit margin (represents the bank’s return during the lease term).
The lessee pays insurance to the bank (at an agreed rate) to ensure that the leased asset is being kept maintained during the entire lease term.
The bank is the owner of the asset within the lease term until the lease payments are once fully paid, and ownership of the leased asset is transferred to the Lessee after finishing the leasing period.
Definition of Ijara Mawsoufa fi Al Thima (Leasing Benefits and Services)
Ijara Mawsoufa fi Al Thima is leasing an intangible asset for the customers with a certain period and with a certain profit.
Steps of implementing the Ijara Mawsufa fi Al Thima in Islamic Banks:
The lessor (the bank) shall enter into a lease agreement with the customer for a certain intangible asset before possessing it.
The bank, then contracts with the institution that provides the service with a contract of Ijara Mawsufa fi Al Thima.
The bank should condition the requirement of the service provider to provide the service to itself or to its determined client.
Terms of Ijara Mawsufa fi Al Thima
The lessor is not entitled to deliver the rented subject to the customer before the date agreed upon.
Ijara Mawsufa fi Al Thima shall not be postponed from the date agreed upon.
The leasing of services such as; tuition, medical treatment, transportation etc., are considered as Ijara Mawsufa fi Al Thima if they are only provided to the favor of a corporate body.
Hajj and Umrah
Tourism trips
Treatments and surgeries
Tuition and education fees (school and university)
Training course fees.
Hall rental for weddings.
And other services that are decided by the Board of Directors in accordance with the provisions of Islamic Sharia
