Bai-Murabaha on Order and Promise

Bai-Murabaha on Order and Promise

If there are three parties, the buyer, the seller and the Bank as an intermediary trader between the buyer and the seller, where the Bank upon receipt of order from the buyer with specification and a prior outstanding promise to buy the goods from the Bank, purchases the ordered goods and sells those to the ordering buyer at a cost plus agreed profit, the sale is called "Bai-Murabaha on Order or Promise", generally known as Murabaha.

This Murabaha upon order and promise is generally used by the Islami Banks, which undertake the purchase of commodities according to the specification requested by the Clients and sale on Bai-Murabaha to the one who ordered for the goods and promised to buy those for its cost price plus a marked-up profit agreed upon previously by the two parties, the Bank and the Client.

In this Bank, Bai-Murabaha is treated as a contract between the Bank and the Client under which the Bank purchases the Specified goods as per order and specification of the Client and sells those to the ordering Client at a cost plus agreed upon profit payable within a fixed future date in lump sum or by fixed

installments.                                                                                                                           

Thus it is a sale of goods on profit by which ownership of the goods is transferred by the Bank to the Client but the payment of the sale price (cost plus profit)

the Client is deferred for a fixed period.

It may be noted here that, in case of Bai-Muajjal and Bai-Murabaha, Islamic Bank is a financier to the Client not in the sense that the Bank finances the purchase of

goods by the Client, rather it is a financier by deferring the receipt of sale price of the goods sold by the Bank to the Client.

If the Bank does not purchase the goods or does or does not make any purchase agreement with seller, but only makes payment of any goods directly purchased and received by the Client from the seller under Bai-Muajjal/ Bai-Murabaha Agreement, that will be a remittance of the amount on behalf of the Client, which shall be nothing but a loan to him and any profit on this amount shall be nothing but Interest (Riba).

Therefore, purchase of goods by the Bank should be for and on behalf of the Bank and the payment of price of goods by the Bank must be made for and on behalf of the Bank. If in any way the payment of price of goods is turned into a payment for and on behalf of the Client or it is paid to the Client any profit on it will be Riba.