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Yumyme ChocolatesNAMES: HUSSAIN ALIMUSTAFA HASSANABDULLA ALTURABI
Financed by
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Table of content: Definitions and legal/Shari’a basis of Murabaha
Advantages and disadvantages of the Murabaha compared to other modes of finance
The required forms and documents used in Al-Baraka
The procedures for providing the money in Al-Baraka
The risks involved in Murabaha contract and how can they be mitigated
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Definition Murabaha
Steps:1. Discuss establishing chocolate factory2. Buy back + profit margin
◦ Ordinary murabaha ◦ Murabaha sales connected with a promise
3. First sale contract takes place◦ Customer is agent
4. Contractor begins construction5. Client will buy back
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Legal/Sharia Basis Contracts based on Quran and Sunna
Examples of fatwas:1. Meaning and purpose (i.e. simply replace “interset” with “profit”)2. Promise (Malki vs others)3. Insurance 4. Commission via administrative costs5. Property as guarantee 6. Bank can use a mode of finance with other banks7. Customer bears costs if purchase promise not executed
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Advantages of MurabahaMudaraba Murabaha
• High level of risk• Responsible for losses if no negligence
• There is guarantor
Ijara Murabaha
• Major maintenance for bank • Ownership will transfer to client• So client is responsible for defects
Istisna Murabaha
• Bound to one contractor • Multiple contractors
Other modes of finance Murabaha
• Doesn’t include it • Revovling Murabaha
Other modes of finance Murabaha
• Doesn’t include it • Retain 50% of costs in case of default
Musharaka Murabaha
• Provide working capital • Only down payment
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Disadvantages of MurabahaIstisna Murabaha
• No need to reveal costs and profit • Have to quote all costs
Ijara Murabaha
• No upfront rentals • There’s down payment
Ijara Murabaha
• Flexible repayment terms • No flexibility • Legal consequences + overdue repayments
Musharaka and other modes Murabaha
• Less costly for bank • Costlier since bank is payment full amount at first
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The procedures for providing the moneyStep 1: filling the application form and attaching the required documents
Step 2: analyzing the client application
Step 3: signing the facilities agreement and the offer letter
Step 4: sign an Agency contract (Wakala) – client trustworthy
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The procedures for providing the moneyStep 5: Murabaha financing process:
•A- One off
•B- Revolving
Step 6: local purchase order
Step 7: payment request letter with an invoice
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The procedures for providing the money
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The required forms and documents used in Bank AL-Baraka:Application form
Required documents from the client
Credit Approval Routing Slip
Facilities agreement
Offer letter
Agency contract (Wakala)
Local purchase order
Invoice
Payment against invoice letter
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RisksCredit Risk
Market Risk
Operational Risk
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Credit RiskDefaults in payment
1% Late Payment
Postponed Cheques
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Market Risk
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Operational Risk
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Thank you for listening