What is Murabaha?
Murabaha is a particular type of sale where the seller explicitly discloses the cost of the commodity / assets purchased by him, and the expected profit from the sale thereof to the purchaser. In other words, it is a contract where cost of the assets and the expected profit are disclosed by the seller to the potential buyer.
How does it work?
Within a Murabaha, Islamic bank of Afghanistan would upon your request:
- Purchase the goods/material from the vendor;
- Disclose the cost and profit before signing the agreement; and
- Sell the same goods/material either on immediate or deferred payment basis.
How will it benefit you?
Under Murabaha Finance Facility, upon specific request of the Customer, the Bank shall make available amount of financing from pre-approved limit for a specific period of time. Murabaha Finance Transaction will be a credit sale (deferred payment Murabaha). :
Working capital needs, such as purchase of raw material for manufacturing concerns, can be facilitated through Murabaha;
Murabaha can be used to finance imports and exports for the benefits of the industry.
Medium to long-term requirements for purchase of land, building, machinery and equipment’s can also be facilitated through Murabaha;
Financing for consumer durables can be offered on the basis of Murabaha (sale on instalments). It can also be used for financing purchase of construction material for construction or items for house renovation.
The Islamic Bank of Afghanistan offers you a Murabaha Finance to meet your business short term requirement in line with the Shariah principles.
To whom it is offered?
Within Murabaha, IBA offers below products:
It is a Murabaha transaction in which the Islamic bank of Afghanistan buys a product/asset as per the client’s request, from a third party to resell it to the client on a deferred cost basis.
The bank will not resell the product/asset unless authority has been moved from the seller to the bank.
This Murabaha is one of the most commonly used Shariah feature in Islamic banking of Afghanistan, particularly in foreign-trade financing activities.
It is one of the most commonly used transaction under Islamic finance principles in which a Murabaha transaction takes place without any deferral payment. In spot Murabaha, the bank only gets a mark-up that interprets the profit for a spot transaction and not the extra cost it would, otherwise, get for the payment deferral.
In the deferred payment Murabaha, buyer offers the agreed price for the products at a determined future date. This Islamic finance product is an agreement of sale where products are sold against a deferred cost equivalent to the original cost combined with an agreed profit margin.
In Islamic banking, one of the major features of the Murabaha agreement is its utilization as an LC opening. When a business or dealer wishes to finance the product import, they can contact Islamic Bank of Afghanistan to open a Murabaha LC. The bank will conduct credit assessments and then it will request the merchant to sign a written agreement declaring purchase at a deferred cost and an agreed mark-up to the bank.