Jump to navigation Jump to search Not to be confused with Murabba. A proper murâbaḥah transaction differs from conventional interest-charging loans who does finance on carpets several ways. God has permitted trafficking, and forbidden usury .
The Holy Qur’an answered this objection by saying: «Allah has allowed sale and forbidden riba. Hadith also supports use of credit-sales transactions such as murabaḥa. Usmani states that «this position» is accepted «unanimously» by the «four schools» of Islamic law and «the majority» of the Muslim jurists. Murabahah and related fixed financing has been approved by a number of government reports in the Islamic Republic of Pakistan on how to eliminate Interest.
The other two types are tawliyah—sale at cost—and wadiah—sale at specified loss. According to Taqi Usmani «in exceptional cases» an Islamic bank or financial institution may lend cash to the customer for a murâbaḥah, but this is when the customer is acting as an agent of the bank in buying the good the customer needs financed. In this case the client first purchases the commodity on behalf of his financier and takes its possession as such. Thereafter, he purchases the commodity from the financier for a deferred price. Limits of use in practice But these involve risks of loss, profit-sharing modes of financing cannot guarantee banks income. Islamic banker and author Harris Irfan writes that use of murabaha «has become so distorted from its original intent that it has become the single most common method of funding inter-bank liquidity and corporate loans in the Islamic finance industry. The accounting treatment of murâbaḥah, and its disclosure and presentation in financial statements, vary from bank to bank.
Different banks use this instrument in varying ratios. The basic murabaha transaction is a cost-plus-profit purchase where the item the bank purchases is something the customer wants but does not have cash at the time to buy directly. Thus violating the requirement spelled out by Usmani and others. BBA disclosure of the cost price of the item being financed is not a condition of the contract.
The customer then repays the bank similar to a cash loan. The customer now has cash and will be paying the bank back a larger sum of money over time. According to Islamic banker Harris Irfan, this complication has «not persuaded the majority of scholars that this series of transactions is valid in the Sharia. Orthodox Islamic Scholars such as Taqi Usmani emphasize that murâbaḥah should only be used as a structure of last resort where profit and loss sharing instruments are unavailable. Non-orthodox critics of murâbaḥah, have found the distinction of setting a price «against a commodity» as opposed to «against money» — with the first being allow and the second forbidden because «money has no intrinsic utility» — abstract or suspicious. According to El-Gamal it has been called «merely inefficient lending».
Islamic banker Irfan bemoans the fact that «not only is the murabaha money market insufficiently well developed and illiquid, but the very sharia compliance of it has come to be questioned», often by Islamic scholars not known for their strictness. Some of these modes of finance are said to contain some elements of risk, but all these risks are insurable and are actually insured against. The uncertainty or risk to which the business being so financed is exposed is fully passed over to the other party. A financial system built solely around these modes of financing can hardly claim superiority over an interest-based system on grounds of equity, efficiency, stability and growth. Islamic finance control and management of late accounts has become a «vexing problems», according to Muhammad Akran Khan.
Others agree it is a problem. Late fees in particular have been assimilated to riba. Many businessmen who had borrowed large amounts of money over long periods of time seized the opportunity of Islamicization to do away with accumulated interest of their debt, by repaying only the principal — usually a puny sum when years of double-digit inflation were taken into consideration. 12,000 which is to be paid by Adam in equal installments over the next two years. Murabaha Bank using this transaction maintain it is different because the amount that Adam owes is fixed and does not increase if he is delinquent on payments. Therefore, the finance is a sale for profit and not riba.