Amana Investments

What is Murabaha ?

Murabaha refers to the sale of a commodity in which the seller agrees with the buyer to provide him a specific commodity on a certain profit added to his cost. The basic principle of Murabaha is that the seller must disclose the actual cost he has incurred in acquiring the commodity and his profit mark-up thereon. The profit may be a specified amount or be based on a percentage.

Murabaha as a Mode of Finance

Most Islamic banks and financial institutions use Murabaha as a convenient mode of Islamic finance. It can be used as a mode of finance for almost any type of asset-backed financing, including trade finance, import & export, vehicle financing etc.

Murabaha financing also allows for payment on deferred tenors. In such cases, the profit mark up may vary according to the nature of the transaction.

Basic Rules
Murabaha is not a loan given on interest but it is the sale of a commodity; therefore it has to fulfil all conditions necessary for a valid Islamic sale. Although there are many rules regarding contract of sale, the following 3 rules are most important to make any sale valid.
	The goods must exist at the time of sale
	The goods must be in the ownership of the Seller at the time of the sale.
	The goods must be in the physical or constructive possession of the seller at the time of sale.
Financing by way of Murabaha is only acceptable if there is no "Buy Back" arrangement. Such an arrangement is generally used as a device to earn interest. Therefore, Amãna should be supplied to and then sell to its client.

Step by step procedure of financing by way of Murabaha

The Murabaha Transaction

THE MOST ESSENTIAL ELEMENT OF THE TRANSACTION IS THAT THE COMMODITY MUST REMAIN AT AMÃNA'S RISK AFTER PURCHASE FROM THE SUPPLIER AND BEFORE THE SECOND SALE TO THE CUSTOMER.

Security/Collateral

Normally, the customer is required to provide adequate security / collateral to cover Amana's exposure on the customer.

Salient Features
	Asset - based financing
	Transparent fixed pricing
	Amãna takes full ownership risk between buying & selling goods
	Sharia compliant
	No hidden costs
	No processing fees
	No interest rate fluctuation risk