[CHAPTER

6 SIBL EXPERINCE OF MURABAHA INVESTMENT]

SIBL EXPERINCE OF MURABAHA INVESTMENT It is observed that Murabaha occupied 56% of total financing where Hire Purchase under Shirkatul Melk has 32%in the ear 2!""# It is to state that the earl financing $ode of all Isla$ic banks Musharakah due to e%periencing so$e bad occurrences in this $ode

has near to !% invest$ent b the bank where Murabaha Shows stead rate of volu$e in invest$ent portfolio 55 % of total invest$ent# HPSM is another preferable $ode b the bank at present

Source& 'nnual report of 2!!(#2!!)*2!"!*2!""

+he Shariah pre re,uire$ents for trading in goods and services are as follows& "# It is re,uired that the parties to a transaction are of sound $ind and that the decide to enter into a trade b free will* without an coercion# 2# +he ob-ect of sale $ust be halal and it $ust be in e%istence or ordinaril available in the $arket at the ti$e of sale 3# +he seller $ust own the ob-ect of sale before it is sold and delivered to a purchasing part # .# 'n una$biguous price $ust be $utuall agreed and paid b the purchaser to conclude the sale# /onsidering the above re,uire$ents* it is clear that the $ost i$portant re,uire$ent for trading in goods and services is that the seller $ust own what the sell to another part # Hence* in the above0 $entioned Murabaha0based financing the real re,uire$ent for the financing part is to own and then sell the asset to the custo$er# +he duration of ownership is not a shariah concern1 rather it

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should be an econo$ic decision# 3or a trader* the less ti$e an ite$ spends in the inventor * the $ore efficient the trade#

Fig: Investment in diffe ent s!"#m$des $f M! %"%&%

Here in the figure the proportionate invest$ent to different $odes under Murabaha where 4ai0 Mua55al under Murabaha shows higher percentage al$ost (! % of total invest$ent b SI46

6'( Ste)s $f M! %"%&% Investment

In the light of the afore$entioned principles in the earlier chapters* SI46 use the Murabaha as a $ode of finance b adopting the following procedure&
STEP: 1 CLIENT AND BANK SIGN AN AGREEMENT TO ENTER INTO MURABAHA

SI46

'gree$ent to

/6I78+

Murabaha +he client and the 4ank sign an over0all agree$ent whereb the institution pro$ises to sell and the client pro$ises to bu the co$$odities fro$ ti$e to ti$e on an agreed ratio of profit added to the cost# +his agree$ent $a specif the li$it up to which the facilit $a be availed#

STEP: 2 CLIENT APPOINTED AS AGENT TO PURCHASE GOODS ON BANKS BEHALF

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SI46

'gree$ent to Murabaha 'genc 'gree$ent

/6I78+

9hen the custo$er re,uires a specific co$$odit * the bank appoints the client as his agent for purchasing the co$$odit on its behalf* and both the parties sign an agree$ent of agenc #

STEP: 3 BANK GIVES MONEY TO AGENT FOR PURCHASE OF GOODS

SI46

'gree$ent to Murabaha 'genc 'gree$ent :isburse$ent to the agent

/6I78+

'gent

+he client purchases the co$$odit on behalf of the institution and takes its possession as an agent of the institution#

STEP: 4 CLIENT MAKES AN OFFER TO PURCHASE THE GOODS FROM BANK

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SI46

/6I78+

>ffer to purchase

+he client infor$s the bank that he has purchased the co$$odit on his behalf* and at the sa$e ti$e* $akes an offer to purchase it fro$ the institution# STEP: 5 BANK ACCEPTS THE OFFER AND SALE IS CONCLUDED

Murabaha SI46 'gree$ent ? +ransfer of +itle

+he institution accepts the offer and the sale is concluded whereb the ownership as well as the risk of the co$$odit is transferred to the client# 'll these five stages are necessar to effect a valid Murabaha# If the institution purchases the co$$odit directl fro$ the supplier ;which is preferable< it does not need an agenc agree$ent# In this case* the second phase will be dropped and at the third stage the institution itself will purchase the co$$odit fro$ the supplier* and the fourth phase will be restricted to $aking an offer b the client# +his is the onl feature of Murabaha* which can distinguish it fro$ an interest0based transaction# +herefore* it $ust be observed with due diligence at all costs* otherwise the Murabaha transaction beco$es invalid according to Shariah#
D !!"#"$% C&'&( % ") &% D !!"#"$% S%"'):

/6I78+

't the "st step& understanding of sale and purchase 't the 2nd and 3rd steps& =elation of principle and agent# 't the .th step& =elation between the bank and the supplier is that of a bu er and seller# 't the .th and 5th steps& =elation of bu er and seller co$es into operation between the bank and the client# +he relation between bank and client is that of debtor and creditor#

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G"$"#&* M"(+&$ ():

Supplier
3ig& Mechanics of Murabaha

SI46

/usto$er

+he custo$er approaches the 4ank with the re,uest for financing +he 4ank purchases and receives title of ownership fro$ the Supplier +he 4ank $akes pa $ent to the Supplier +he 4ank transfers the title over to the custo$er upon pa $ent +he custo$er $akes pa $ent up0front or on a deferred basis

6'* T %ns%+ti$n Hie % +&, $f M! %"%&% ", SIBL

+o do a Murabaha transaction the following hierarch $ust be insured for fulfilling shariah co$pliance "# Murabaha facilit agree$ent 2# Purchase re,uisition order 3# Purchase advise .# Infor$ation Me$orandu$@declaration 5# >ffer A acceptance for Murabaha
1, M-#&.&+& F&( * %/ A0#""1"$%:

Purpose& Since conventional bank allow cash finance@running finance@de$and finance as one ear short ter$ loan facilities* thus Isla$ic bank hence SI46 is also re,uired to satisf that financing li$it is available to the custo$er SI46 has to prove that the bank deals as financial inter$ediaries# Part =elationship& Shariah status bilateral pro$ise to witness that bank pro$ised with the custo$er to BfinanceC raw $aterial* tradable goods to the custo$er# 4ankDs Status& Pro$isor /usto$erDs Status& Pro$isee =isk Involved&

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In the absence of an financing agree$ent i#e# Murabaha facilit agree$ent the S4P auditors will dee$ the sale purchase of goods between the bank A custo$er as trading has been carried out b SI46 as trader# a# Man ter$s A conditions need to linked out for e%a$ple1 i# Ma%i$u$ a$ount of finance available to the custo$er to $a%i$u$ e%tent of annual raw $aterial@tradable goods# ii# Ma%i$u$ tenure of each Murabaha contract needs to be agreed upon# 'l$ost all Isla$ic banks do not allow Murabaha be ond "(! da s tenure# +he reason being Murabaha contract selling price consist of cost A profit# >nce the selling price is fi%ed cannot be changed# =isk Mitigation& SI46 should e%ecute agenc agree$ent first A si$ultaneousl Murabaha facilit agree$ent with sanction advice@ offer letter should be sub-ect to the e%ecution of both above said agree$ent#
2, P-#(+&)" R"2- ) % 3$ O#4"#

Purpose& +o confir$ that agent re,uires purposing so$e specific goods $ention on purchase re,uisition* thus SI46 beco$e able to know what goods are going to be purchased b agent#

Part =elationship& SI46 is the principal A client is agent# Status of =elationship& 'genc =isk Involved& If purchase re,uisition or purchase order is not sub$itted b the agent Bin ti$eC* there is a risk that SI46 $a be classified as Bacting against lawC# +his create the difference that the co$$ercial bank not to act as trading house A if SI46 does not receive an purchase @order fro$ the custo$er as agent and goods are purchased then Isla$ic Shariah is violated b the bank# =isk Mitigation& In case of finance related business purchase order application received b SI46#

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3, P-#(+&)" A45 ("

Purpose& +o restrain the agent to purchase goods without principal authorit # Part relationship& SI46 is the principal A client is agent# Status of =elationship& 'genc =isk Involved& If purchase advice is not issued b SI46 in ti$e @before purchase of goods* the agent b issuing -ust a purchase re,uisition @order $a purchase so$e dangerous goods which risk is borne b SI46

=isk Mitigation& SI46 should issue purchase advice before the goods are purchased b the bank#
4, I$!3#1&% 3$ M"13#&$4-16D"(*&#&% 3$

Purpose& +o bind the agent to infor$ the principal i$$ediatel after the goods are possessed b the agent# Part =elationship& SI46 is the principal A client is agent#

Status of =elationship& 'genc =isk Involved& If infor$ation $e$orandu$ declaration is not issued Bin ti$eC i$$ediatel after the goods possessed b the agent* the goods $a be consu$ed b the agent in its possession before the infor$ation $e$orandu$ @ declaration is issued b the agent* thus once the goods have been consu$ed that do not e%ist accordingl conse,uentl no sale purchase of such goods can be e%ecuted which do not e%ist* however b neglecting this Shariah principal an act for the sale purchase of such goods will render such t pe of sale as void#

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=isk Mitigation& SI46 /o$pute average raw $aterial consu$ption period in ter$ of da s for each respective client# F 'verage stock or stock value at an particular point in ti$e 'verage consu$ption of raw $aterial per da 3or e%a$ple&

.5 da sF

% (.2*!!!@36!

4:+ "!3*(!(

+his .5 da s period will be beco$e bench $ark* under which SI46Ds concerned officer $ust take infor$ation $e$orandu$@ declaration fro$ the agent# However* there should be a concrete product polic to $onitor that1 a# In case of locall $anufactured goods there should not be lapse of "5 da s fro$ the date the pa order@ de$and draft is issued b the bank and declaration is issued b agent# b# In case of i$ported goods* there should be "5 da s fro$ the date the 6/ is established b the bank as opening@ issuing applicant bank A infor$ation $e$orandu$ declaration is issued b the agent#

5, O!!"# 7 A(("'%&$(" F3# M-#&.&+& Purpose& +o e%ecute sale purchase between the bank A client for the goods* possessed b client as agent of bank# =elationship& 4ank is the seller A client is bu er# =isk Involved&

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If sale is not e%ecuted in ti$e* then bank involve in a risk of e%ecuting Murabaha contract for the goods which does not e%ist# +he reason being the client feels co$fort while consu$ing the goods in its possession that the issuance of infor$ation $e$orandu$@declaration was the enough sufficient docu$ent to consu$e the goods# 3urther* nor$all bank wait for receiving of co$$ercial invoice@sale ta% invoice as an evidence of ownership to e%ecute sale of Murabaha with the custo$er# 'n other docu$ent which proves that ownership has been taken b the bank should be used to avoid BvoidC contract of Murabaha# Such docu$ents in case of local $anufactured goods are1 a# =ailwa @truck receipt b# Goods dispatch note issued b supplier c# Goods received note* being prepared at client pre$ises# 9hereas in case of i$port goods* receiving of bill of lading is a first class docu$ent evidenced the ownership of bank# +here are two kinds of possession1 a# Ph sical b# /onstructive through this kind of possession over goods is taken through a docu$ents evidencing the transfer of ownership# =isk Mitigation& I$$ediatel after receiving the infor$ation $e$orandu$@declaration fro$ the client Murabaha contract should be e%ecuted on the sa$e da based on constructive possession* now on this stage following conditions of a valid sale are fulfilled1

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C3$4 % 3$ 3! 5&* 4 )&*"): Parties to the contract for $aking offer A acceptance# >wnership of the sub-ect $atter with the seller# Possession over the goods $ust be with the owner of the goods ph sical or constructive ;free charge having full infor$ation that there is no clai$ of ant third part over the goods like Mortgage* pledge* h pothecation charge<#Price ;sa$an< @ 6awful /onsideration#

6'-

M! %"%&% .$+!ment%ti$n ", SIBL

+here are a nu$ber of docu$ents involved in a Murabaha financing transaction# +he $ost essential of these docu$ents that is produced b SI46 are& Master Murabaha 3inance 'gree$ent ;MM3'< 'genc 'gree$ent >rder 3or$ Su$$ar Pa $ent Schedule :eclaration

M&)%"# M-#&.&+& F $&$(" A0#""1"$%

ItDs an agree$ent between the client and the bank whereb the client agrees to purchase goods fro$ the bank fro$ ti$e to ti$e as per the ter$s and conditions of this agree$ent# MM3' is an over all facilit agree$ent under which various Sub0Murabaha $a be e%ecuted fro$ ti$e to ti$e# Hence it needs to be signed once at the ti$e the facilit is sanctioned#
A0"$(/ A0#""1"$% +he client is appointed b the bank as its agent to purchase goods# +his agree$ent needs to be signed once between the client and the bank# +he disburse$ent of funds is done under this agree$ent# /lient needs to fill out the list of assets which it will purchase#

O#4"# F3#18 S-11&#/ P&/1"$% S(+"4-*" +hese docu$ents are re,uired for ach disburse$ent@ Sub0Murabaha tranche# D"(*&#&% 3$ :eclaration is to be signed b the custo$er i$$ediatel after it has purchased the goods# +his docu$ent establishes the actual sale transaction* i0e transfer of ownership of goods fro$ the bank to the custo$er# 't this stage the specific details of the assets $ust be known i0e ,uantit * ,ualit etc# proper ti$ing of declaration is e%tre$el i$portant#

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6'/

P %+ti+%0 Iss!es in M! %"%&%#O"se v%ti$n f $m SIBL

"# +i$ing of H>ffer A 'cceptanceD 2# =ollover in Murabaha 3# =ebate on 7arl pa $ent .# Penalt in 6ate pa $ent 5# Sub-ect Matter 6# Purchase 7vidence E# :irect Pa $ent (# Profit recognition )# +raining of /usto$er A 4ank staff "!# Process of Murabaha differ fro$ product to products

1, T 1 $0 3! 9O!!"# 7 A(("'%&$(" I ' Murabaha financing arrange$ent consists of a series of docu$ents to be e%ecuted at various stages* the se,uence and ti$ing of which is e%tre$el i$portant# I +hrough this* client and the bank e%ecute an i$portant step of a valid Murabaha sale i#e# >ffer A 'cceptance# I +his is to be signed b the custo$er when it has purchased and taken possession of the goods as the 4ankDs agent# I >ffer A 'cceptance $ust be signed while the goods are still in e%istence and have not been used in the production process or sold to so$e other entit # 2, R3**35"# $ M-#&.&+& I =ollover in Murabaha is not allowed since each Murabaha transaction is for the purchase of a particular asset# ' new Murabaha can onl be e%ecuted for the purchase of new assets# I It is advisable that whenever practicable there $ust be a gap of "02 da s between $aturit of the previous Murabaha and disburse$ent of the new one#

3, R".&%" 3$ E&#*/ P&/1"$%) I If the custo$er $akes earl pa $ent and there is no co$$it$ent fro$ the institution in respect of an discount in the price of Murabaha* than the institution has the sole discretion in allowing the$ the rebate# I It is not reco$$ended to $ake it a practice and $ust be avoided in nor$al course of business# Such issue* if arises* should be brought in the knowledge of Shariah advisor

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4, P"$&*%/ 3$ L&%" P&/1"$%) I 's soon as the Murabaha is e%ecuted* the Murabaha price beco$es a receivable for the 4ank# Hence* an a$ount charged over and above the a$ount will be =iba# I However* it is per$issible to have an undertaking fro$ the custo$er to pa an a$ount of $one or a percentage of the debt to be donated to charitable causes in the event of dela in pa $ent@instal$ents# 5, S-.:"(% M&%%"# 3! M-#&.&+& I Goods $ust e%ist at the ti$e of e%ecution of Murabaha# I Murabaha cannot be done in all co$$odities* e#g# such as currencies* gold* silver# I Murabaha cannot be used for pa ing utilit bills* wages* overhead e%penses* etc# I General rules of sale related to sub-ect $atter $ust be followed ;, P-#(+&)" E5 4"$(" I In order to ensure that the custo$er actuall purchased the assets as clai$ed* the custo$er is re,uired to sub$it asset purchase evidence along with >ffer A 'cceptance# I +he purchase evidence $ust confir$ that the asset purchase took place after the agenc agree$ent# I 'sset purchase $a be in the for$ of Invoices* deliver orders* truck receipts etc# ;, P-#(+&)" E5 4"$(" I In so$e cases* however* it $a be too burdenso$e for the client to sub$it all the invoices as the nu$ber of invoices $a run into hundreds# I 3or e%a$ple* cotton purchases are generall in s$all ,uantities fro$ various sources and hence for each Sub0Murabaha there $a be too $an invoices to sub$it# It is suggested to furnish considerable sa$ple of invoices along with su$$ar of all purchases#

<, D #"(% P&/1"$% $ M-#&.&+& I In $an cases* the disburse$ent is $ade to the custo$er as an agent of the bank# I In order to ensure transparenc of the Murabaha* it is preferable that disburse$ent @ pa $ent be $ade directl to the supplier# =, P#3! % R"(30$ % 3$ $ M-#&.&+& I Generall in Murabaha transaction there are in two stages& I Invest$ent Stage ;'genc to Purchase< I 3inancing Stage ;:eclaration to pa $ent<

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I +he profit for the Murabaha transaction can be recogni5ed after the goods are sold b the bank to the custo$er# >, T#& $ $0 3! C-)%31"#) 7 B&$? )%&!! I Proper training A understanding of is ver i$portant for I 4ank staff dealing with the Murabaha I /usto$ers purchase officers A accounts staff# 1@, P#3(")) 3! M-#&.&+& 4 !!"# !#31 '#34-(% %3 '#34-(% I 'pplication of Murabaha is not si$ple for all products I Its application differs fro$ products to products like Sugar cane Shares 6eather /otton Gas Petrol +herefore the =M@=> dealing with the custo$er needs to understand and define step wise process flow along with the invest$ent approval for each new custo$er@industr

6'1 Im)0ement%ti$n $f M! %"%&% P $+ess F0$2

I Je points to check K /usto$er Purchasing / cle K Inventor holding period K Inventor holding $ethod K Pa $ent ter$s to supplier K Mode of Pa $ent K Storage @ warehousing facilit K Ph sical Inspection K +i$ing of >ffer@'cceptance K >ther industr @goods specific para$eters

C&)" 1A M-#&.&+& !3# V"+ (*")

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'4/ Su5uki 'utos is a proprietorship concern* running a vehicle showroo$# +he proprietor purchases cars of different $odels for Su5uki directl fro$ the $anufacturer for further resale in the $arket# +he deliver ti$e varies fro$ 3 $onths to 5 $onths and "!!% pa $ent is advance# I +he client has approached SI46 branch for Murabaha 3acilit a$ounting to +k# 25 $illion for purchase of vehicle# +he Murabaha facilit will be for one ear at a rate of "E% p#a# I Here* the task is to suggest the step wise process flow* docu$entation A calculation involved in the above case# C&)" 1 B P#3(")) F*3C 7%ecution of MM3' and 'genc with '4/ Su5uki 'utos after approval of 6i$it# I '4/ Su5uki 'utos re,uests ;via >rder 3or$< for booking@purchase of vehicles fro$ Su5uki /o worth +k# 25 $ln# I SI46 issue Purchase order along with Pa >rder in favor of Su5uki /o for booking of vehicles# I Lpon co$pletion of the >rder after 5 $onths* Su5uki will inti$ate SI46 along with asset description ;engine@/hassis 8o# etc< SI46 will inti$ate '4/ 'utos about availabilit of vehicles# '4/ autos will sub$it :eclaration ;after 5 $onths< along with Su$$ar Pa $ent Schedule# I SI46 will accept :eclaration and will issue :eliver >rder along with +ransfer 6etter in favor of '4/ 'utos# I >n the due date ;one ear fro$ the date of disburse$ent<* '4/ 'utos will pa the /ontract Price of Murabaha to SI46# /ontract Price F 25 $ln M ;" ? ;k ? 3%<<

6'6 P%,ment C%0+!0%ti$n

L-1' S-1' P&/1"$% 3inancing a$ount Profit =ate +k# "!! $illion +k# "6% per annu$ ;4ased on e%perience and weight< +enor " ear

Pa $ent of Murabaha price 6u$p su$p pa $ent '$ount due of 3irst ear /ontract price ;Murabaha selling Price< F3-# U$"2-&* I$)%&**1"$%) +k# ""6 $illion +k# ""6 $illion at the end

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3inancing a$ount Profit =ate +enor Pa $ent of Murabaha price '$ount due

+k# "!! $illion +k# "6% per annu$ " ear four une,ual install$ents

+k# . $illion ;F !#"6@.M"!!< at the end of first 3 ,uarters +k# "!. $illion ;F "!!?.< at the end of the last ,uarter /ontract price +k# ""6 $illion

F3-# E2-&* I$)%&**1"$%) 3inancing a$ount Profit =ate +enor Pa $ent of Murabaha price '$ount due /ontract price four e,ual install$ents +k# 2E#55 $illion ;based on nF.* rF.%* PNF"!!< at the end of each ,uarter +k# ""!#2 $illion +k# "!! $illion +k# "6% per annu$ " ear

6'3 A++$!nting P $+ed! e t$ M! %"%&% ", SIBL

Measure$ent of asset value at accosting b SI46& /oncepts of 3inancial 'ccounting for SI46 and 3inancial Institutions stipulates that historical cost shall be the basis used in $easuring and recording the assets at the ti$e of ac,uisition# +herefore* the assets possessed b the bank for the purpose of selling the$ on the basis of Murabaha purchase order shall be $easured at the ti$e of their ac,uisition on an historical cost basis# In the cases where the asset value declines below cost whether due to da$age* destruction or fro$ other unfavorable circu$stances* such decline shall be reflected in the valuation of the asset at the end of each financial period# In the case of Murabaha to the purchase ordered who is not obliged to fulfill his pro$ise & If the bank finds that there is an indication of possible non0recover of the costs of goods available for sale on the basis of Murabaha to the purchase order who is not obliged to fulfill his pro$ise* the asset shall be $easured at the cash e,uivalent ;i#e# net reali5able< value# +his shall be achieved b creating a provision for a decline in the asset value to reflect the difference between ac,uisition cost and the cash e,uivalent value# Potential :iscount to be >btained after 'c,uisition of the 'sset

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;a<

In cases where the bank is likel * at the ti$e of concluding the contract with the client* to obtain a discount on the asset available for sale on the basis of Murabaha or Murabaha to the purchase order* and the discount is in fact received subse,uentl * such discount shall not be considered as revenue for the Isla$ic bank1 instead* the cost of the relevant goods shall be reduced b the a$ount of the discount# /onsideration should be given to the i$pact this will have on both the profits of the current period and future deferred profits# +he discount $a * however* be treated as revenue for the bank if this is decided b the Shariah supervisor board of the Isla$ic bank# Such revenue shall be recogni5ed in the inco$e state$ent#

;b<

Murabaha =eceivables

Short0ter$ or long0ter$ Murabaha receivables shall be recorded at the ti$e of occurrence at their face value# Murabaha receivables are $easured at the end of the financial period at their cash e,uivalent value# +hus* receivables are valued at the a$ount of debt due fro$ the custo$ers at the end of the financial period less an provision for doubtful debts#
Profits =ecognition

Profits of Murabaha or Murabaha to the purchase order are recogni5ed at the ti$e of contracting if the sale is for cash or on credit not e%ceeding the current financial period# Profits of a credit sale which will be paid for either b $eans of one pa $ent due after the current financial period or b install$ents over several future financial periods shall be recogni5ed b using one of the following two $ethods& ;a<
Proportionate allocation of profits over the period of the credit whereb each financial period shall carr its portion of profits irrespective of whether or not cash is received# +his is the preferred $ethod# 's and when the install$ents are received# +his $ethod shall be used based on a decision b the Shariah supervisor board of the bank or* if it is re,uired* b the Supervisor authorities#

;b<

:eferred Profits :eferred profits shall be offset against Murabaha receivables in the state$ent of financial position# 7arl settle$ent with deduction of part of profit :eduction of part of profit at the ti$e of settle$ent& If a client accelerates his pa $ent of one or $ore install$ents prior to the date specified for such pa $ent* the bank $a deduct part of the profit to be agreed upon between the bank and the client at the ti$e of settle$ent# +he deducted

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a$ount shall be credited to the Murabaha receivable account and e%cluded fro$ the profit recogni5ed in respect of the install$ents# :eduction of part of the profit after settle$ent +he sa$e accounting treat$ent applies if the client accelerates his pa $ents one or $ore install$ents prior to the ti$e specified for such pa $ent and the bank did not allow the client a deduction of part of the profit but asked the client to pa the full a$ount and thereafter the bank rei$bursed the client with part of the profit# Procrastination in pa $ent b * or insolvenc of* the client Procrastination: If the client is delin,uent in pa ing his debt install$ents* then an additional a$ount received b the Isla$ic bank fro$ the client as a penalt ;either b $utual agree$ent or b court ruling< shall be treated according to what the Shariah supervisor board of the Isla$ic bank dee$s appropriate either as& a< =evenue to the Isla$ic bank1 or b< 'n allocation to a charit fund# Insolvenc & If it beco$es evident that the clientOs non0pa $ent was due to insolvenc * then the bank cannot ask the client to pa an additional a$ount b wa of penalt #

6'4 P %+ti+%0 E5%m)0e: C%se St!d, # M! %"%&% Investment t$ RT Inte n%ti$n%0# %++$!nting ) $+ess %nd "e&%vi$ $f m$de
4elow is the case stud for the understanding of Murabaha transactions carried out at Social Isla$i 4ank 6i$ited in various scenarios& =+ I8+7=8'+I>8'6 a valued client of Social Isla$i 4ank 6i$ited en-o ing a 4ai0$ua--al revolving li$it facilities of +k# "!#!! lac to doing poultr business based on its own fir$ in Pubail* ga5ipur# 'll the related papers are sub$itted# +he client secured her loan facilit b 36.#2( deci$al lands at 8iler para* Ga5ipur Sadar#the head office approved the proposal #the other details as follows table

7%a$ple Purchase price@cost@principal Profit rate

'$ount in +k# "!*!!*!!! "!%

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+enure +otal profit on transaction Sale price ;contract price< :ate of disburse$ent to supplier@custo$er :ate of cul$ination of Murabaha transaction :ate of $aturit of Murabaha

>ne ear "!!!!! "!*"!*!!! Panuar !"*2!!) Panuar "5*2!!) :ece$ber 3"* 2!!)

Scenario A-When there is bullet payment of profit and Cost (Principal) at the end of the period: 1D 't the ti$e of pa $ent to the client for the purchase of goods A re,uest the bank to disburse direcl to the part '@c ;but no voucher is found< b the bank the transaction will be accounted for as follows& E&$-&#/ @18 2@@> :r 'dvance against Murabaha ;4@S 'sset side< /r Part 'ccount ;4@S 6iabilit side< "!* !!*!!! "!* !!*!!!

2D 't the C-*1 $&% 3$ 3! M-#&.&+& i#e# at the ti$e of sale of goods to the custo$ers with signing of :eclaration b the bank and the client following entries would be passed& E&$-&#/ 158 2@@> :r :r /r /r Murabaha 3inancing Lnearned Murabaha Profit =eceivable 'dvance against Murabaha :eferred Murabaha Inco$e "!* !!*!!! "!!*!!! "!* !!*!!! "!!*!!!

3D 4ooking of 'ccrual of profitQ "!% fro$ the date of disburse$ent to the date of cul$ination* the following entr would be passed# R;"!* !!*!!! % "!%< % "5 @ 365S&

E&$-&#/ 158 2@@> :r :r /r /r :eferred Murabaha Inco$e Murabaha Profit =eceivable Inco$e on Murabaha 3inancing Lnearned Murabaha Profit =eceivable ."!! ."!! ."!! ."!!

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4D 4ooking of 'ccrual of profitQ "!% for re$aining da s of the $onth* the following entr would be passed# R;"!* !!*!!! % "!%< % "6 @ 365S& E&$-&#/ 318 2@@> :r :eferred Murabaha Inco$e :r Murabaha Profit =eceivable /r Inco$e on Murabaha 3inancing /r Lnearned Murabaha Profit =eceivable .3)! .3)! .3)! .3)!

'nd so on this entr will be passed at the end of 7'/H $onth till $aturit for the accrual of profit# D )(*3)-#" $ B&*&$(" S+""% &) 3$ E&$-&#/ 318 2@@> Murabaha receivable0gross 6ess& :eferred Murabaha Inco$e T"!* !!*!!!0 ;"!* !!*!!!%"!%%3"@365<U Murabaha Profit =eceivable shown in other assets M-#&.&+& F $&$( $0 R"(" 5&.*" ;)"5"!< ;(.)!< 1@@8@@@ ""* !!*!!!

5D >n Maturit of Murabaha transaction i#e# on :ece$ber 3"* 2!!) and at the ti$e of receiving of final pa $ent following entr would be passed& D"("1."# 318 2@@> :r /r /r Part 4ank '@c Murabaha 3inancing Murabaha Profit =eceivable ""* !!*!!! "!* !!*!!! "!!*!!!

Scenario B-In case Declaration is not recei ed on !anuary "#$ %&&' and is recei ed on (ebruary "#$ %&&': "D 't the ti$e of pa $ent to the client for the purchase of goods on behalf of bank or directl to the supplier b the bank the transaction will be accounted for as follows& !anuary &"$ %&&' :r /r 'dvance against Murabaha Pa >rder @ Part 'ccount "!* !!*!!! "!* !!*!!!

O$ E&$-&#/158 2@@>

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)o entry *ould be passed At the end of (irst +onth i,e, !anuary -"$ %&&' 8o entr would be passed for accruals of profit* as :eclaration has not been received fro$ the custo$er.

%) O$ F".#-&#/ 158 2@@>8 at the cul$ination of Murabaha i#e# at the ti$e of sale of goods to the custo$ers with signing of :eclaration b the bank and the client* the following entries would be passed& (ebruary "#$ %&&' :r :r /r /r Murabaha 3inancing Lnearned Murabaha Profit =eceivable 'dvance against Murabaha :eferred Murabaha Inco$e "!* !!*!!! "* !!*!!! "!* !!*!!! "* !!*!!!

3D 4ooking of 'ccrual of profitQ "!% fro$ the date of disburse$ent to the date of cul$ination* the following entr would be passed# R;"!* !!*!!! % "!%< % ;3"?"5<@ 365S& F".#-&#/ 158 2@@> :r :r /r /r :eferred Murabaha Inco$e Murabaha Profit =eceivable Inco$e on Murabaha 3inancing Lnearned Murabaha Profit =eceivable "26!! "26!! "26!! "26!!

4D 4ooking of 'ccrual of profitQ "!% for re$aining da s of the $onth* the following entr would be passed# R;"!* !!*!!! % "!%< % "3 @ 365S&

(ebruary %.$ %&&' Dr :r /r /r :eferred Murabaha Inco$e Murabaha Profit =eceivable Inco$e on Murabaha 3inancing Lnearned Murabaha Profit =eceivable 356! 356! 356! 356!

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'nd so on this entr will be passed at the end of 7'/H $onth till $aturit for the accrual of profit# 8>+7& In case the Murabaha declaration is 8>+ received on the due date* 8> 7ntr would be passed until the declaration is received# Disclosure in Balance Sheet as at (ebruary %.$ %&&' Murabaha receivable0gross ""* !!*!!!

6ess& :eferred Murabaha Inco$e T"!* !!* !!0 ;"!* !!*!!!%"!%% ;3"?2(<@365<U ;(3(.!< Murabaha Profit =eceivable shown in other assets +urabaha (inancin/ 0ecei able ;"6"6!< "&$ &&$&&&

#) >n Maturit of Murabaha transaction i#e# on :ece$ber 3"* 2!!) and at the ti$e of receiving of final pa $ent following entr would be passed& December -"$ %&&' :r /r /r Part 4ank '@c Murabaha 3inancing Murabaha Profit =eceivable "!* !!*!!! )* !!*!!! "* !!*!!!

>n the first date of 2!"!* the client has +k#"!!* !!! principal outstanding# 's profit is forbidden b Shariah to be valid after :ece$ber 3"* 2!!)# +he bank continuing charged profit#

#) 'fter e%piring $aturit of Murabaha transaction i#e# >n :ece$ber 3"* 2!!) and at the ti$e of receiving of final pa $ent on Panuar 3"* 2!"! following entr would be passed& "S1 !A)2A03 &"$ %&"& :r :r /r /r Murabaha 3inancing /o$pensation =eceivable 'dvance against Murabaha :eferred Murabaha co$pensation charged "* !!*!!! "!* !!! "!* !!*!!! "!*!!!

31)% E&$-&#/8 2@1@ :r /r Part 4ank '@c Murabaha 3inancing "!!(33 "* !!*!!!

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/r

/o$pensation Inco$e

(33

=est +k )"6E will be given as rebate :r /r =ebate on /o$pensation =eceivable Part '@c )"6E )"6E

A the account is closed#

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