Chap- 6 SIBL Experince of Murabaha Financing

[CHAPTER 6 SIBL EXPERINCE OF MURABAHA INVESTMENT]

SIBL EXPERINCE OF MURABAHA INVESTMENTIt is observed that Murabaha occupied 56 of total financing where Hire Purchase under Shirkatul Melk has 32in the year 2011 It is to state that the early financing mode of all Islamic banks Musharakah due to experiencing some bad occurrences in this mode

has near to 0 investment by the bank where Murabaha Shows steady rate of volume in investment portfolio 55 of total investment HPSM is another preferable mode by the bank at present

Source Annual report of 2008200920102011

The Shariah pre requirements for trading in goods and services are as follows 1 It is required that the parties to a transaction are of sound mind and that they decide to enter into a trade by free will without any coercion2 The object of sale must be halal and it must be in existence or ordinarily available in the market at the time of sale 3 The seller must own the object of sale before it is sold and delivered to a purchasing party4 An unambiguous price must be mutually agreed and paid by the purchaser to conclude the sale

Considering the above requirements it is clear that the most important requirement for trading in goods and services is that the seller must own what they sell to another party Hence in the above-mentioned Murabaha-based financing the real requirement for the financing party is to own and then sell the asset to the customer The duration of ownership is not a shariah concern rather it

61 | P a g e

should be an economic decision For a trader the less time an item spends in the inventory the more efficient the trade

Fig Investment in different sub-modes of Murabaha

Here in the figure the proportionate investment to different modes under Murabaha where Bai-Muazzal under Murabaha shows higher percentage almost 80 of total investment by SIBL

61 Steps of Murabaha Investment

In the light of the aforementioned principles in the earlier chapters SIBL use the Murabaha as a mode of finance by adopting the following procedure

STEP 1 CLIENT AND BANK SIGN AN AGREEMENT TO ENTER INTO MURABAHA

The client and the Bank sign an over-all agreement whereby the institution promises to sell and the client promises to buy the commodities from time to time on an agreed ratio of profit added to the cost This agreement may specify the limit up to which the facility may be availed

62 | P a g e

SIBL CLIENTAgreement to

Murabaha

STEP 2 CLIENT APPOINTED AS AGENT TO PURCHASE GOODS ON BANKrsquoS BEHALF

When the customer requires a specific commodity the bank appoints the client as his agent for purchasing the commodity on its behalf and both the parties sign an agreement of agency

STEP 3 BANK GIVES MONEY TO AGENT FOR PURCHASE OF GOODS

The client purchases the commodity on behalf of the institution and takes its possession as an agent of the institution

63 | P a g e

Murabaha

Agency Agreement

Murabaha

Agency Agreement

AgentDisbursement to the agent

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

The client informs the bank that he has purchased the commodity on his behalf and at the same time makes an offer to purchase it from the institution

STEP 5 BANK ACCEPTS THE OFFER AND SALE IS CONCLUDED

The institution accepts the offer and the sale is concluded whereby the ownership as well as the risk of the commodity is transferred to the client

All these five stages are necessary to effect a valid Murabaha If the institution purchases the commodity directly from the supplier (which is preferable) it does not need any agency agreement In this case the second phase will be dropped and at the third stage the institution itself will purchase the commodity from the supplier and the fourth phase will be restricted to making an offer by the client

This is the only feature of Murabaha which can distinguish it from an interest-based transaction Therefore it must be observed with due diligence at all costs otherwise the Murabaha transaction becomes invalid according to Shariah

Different Capacities at Different Steps

At the 1st step understanding of sale and purchase At the 2nd and 3rd steps Relation of principle and agent At the 4th step Relation between the bank and the supplier is that of a buyer and seller

64 | P a g e

SIBLCLIENT

Offer to purchase

SIBLCLIENT

Murabaha

Agreement

Transfer of Title

At the 4th and 5th steps Relation of buyer and seller comes into operation between the bank and the client The relation between bank and client is that of debtor and creditor

General Mechanics

Fig Mechanics of Murabaha

The customer approaches the Bank with the request for financing The Bank purchases and receives title of ownership from the Supplier The Bank makes payment to the Supplier The Bank transfers the title over to the customer upon payment The customer makes payment up-front or on a deferred basis

62 Transaction Hierarchy of Murabaha by SIBL

To do a Murabaha transaction the following hierarchy must be insured for fulfilling shariah compliance

1 Murabaha facility agreement2 Purchase requisition order3 Purchase advise4 Information Memorandumdeclaration5 Offer amp acceptance for Murabaha

1 Murabaha Facility Agreement

Purpose

Since conventional bank allow cash financerunning financedemand finance as one year short term loan facilities thus Islamic bank hence SIBL is also required to satisfy that financing limit is available to the customer

SIBL has to prove that the bank deals as financial intermediaries

Party Relationship

Shariah status bilateral promise to witness that bank promised with the customer to ldquofinancerdquo raw material tradable goods to the customer

Bankrsquos Status

Promisor

65 | P a g e

Supplier SIBL Customer

Customerrsquos Status

Promisee

Risk Involved

In the absence of any financing agreement ie Murabaha facility agreement the SBP auditors will deem the sale purchase of goods between the bank amp customer as trading has been carried out by SIBL as trader

a Many terms amp conditions need to linked out for examplei Maximum amount of finance available to the customer to maximum

extent of annual raw materialtradable goodsii Maximum tenure of each Murabaha contract needs to be agreed upon

Almost all Islamic banks do not allow Murabaha beyond 180 days tenure The reason being Murabaha contract selling price consist of cost amp profit Once the selling price is fixed cannot be changed

Risk Mitigation

SIBL should execute agency agreement first amp simultaneously Murabaha facility agreement with sanction advice offer letter should be subject to the execution of both above said agreement

2 Purchase Requisition Order

Purpose

To confirm that agent requires purposing some specific goods mention on purchase requisition thus SIBL become able to know what goods are going to be purchased by agent

Party Relationship

SIBL is the principal amp client is agent

Status of Relationship

Agency

Risk Involved

If purchase requisition or purchase order is not submitted by the agent ldquoin timerdquo there is a risk that SIBL may be classified as ldquoacting against lawrdquo This create the difference that the commercial bank not to act as trading house amp if SIBL does not receive any purchase order from the customer as agent and goods are purchased then Islamic Shariah is violated by the bank

Risk Mitigation

66 | P a g e

In case of finance related business purchase order application received by SIBL

3 Purchase Advice

Purpose

To restrain the agent to purchase goods without principal authority

Party relationship

Agency

Risk Involved

If purchase advice is not issued by SIBL in time before purchase of goods the agent by issuing just a purchase requisition order may purchase some dangerous goods which risk is borne by SIBL

Risk Mitigation

SIBL should issue purchase advice before the goods are purchased by the bank

4 Information MemorandumDeclaration

Purpose

To bind the agent to inform the principal immediately after the goods are possessed by the agent

Party Relationship

Agency

Risk Involved

If information memorandum declaration is not issued ldquoin timerdquo immediately after the goods possessed by the agent the goods may be consumed by the agent in its

67 | P a g e

possession before the information memorandum declaration is issued by the agent thus once the goods have been consumed that do not exist accordingly consequently no sale purchase of such goods can be executed which do not exist however by neglecting this Shariah principal any act for the sale purchase of such goods will render such type of sale as void

Risk Mitigation

SIBL Compute average raw material consumption period in term of days for each respective client

= Average stock or stock value at any particular point in time

Average consumption of raw material per day

For example

45 days= x

842000360

x = BDT 103808

This 45 days period will be become bench mark under which SIBLrsquos concerned officer must take information memorandum declaration from the agent

However there should be a concrete product policy to monitor thata In case of locally manufactured goods there should not be lapse of 15 days

from the date the pay order demand draft is issued by the bank and declaration is issued by agent

b In case of imported goods there should be 15 days from the date the LC is established by the bank as opening issuing applicant bank amp information memorandum declaration is issued by the agent

5 Offer amp Acceptance For Murabaha

Purpose

To execute sale purchase between the bank amp client for the goods possessed by client as agent of bank

Relationship

Bank is the seller amp client is buyer

Risk Involved

68 | P a g e

If sale is not executed in time then bank involve in a risk of executing Murabaha contract for the goods which does not exist The reason being the client feels comfort while consuming the goods in its possession that the issuance of information memorandumdeclaration was the enough sufficient document to consume the goods

Further normally bank wait for receiving of commercial invoicesale tax invoice as an evidence of ownership to execute sale of Murabaha with the customer

Any other document which proves that ownership has been taken by the bank should be used to avoid ldquovoidrdquo contract of Murabaha Such documents in case of local manufactured goods are

a Railwaytruck receipt b Goods dispatch note issued by supplierc Goods received note being prepared at client premises

Whereas in case of import goods receiving of bill of lading is a first class document evidenced the ownership of bank

There are two kinds of possessiona Physicalb Constructive

through this kind of possession over goods is taken through a documents evidencing the transfer of ownership

Risk Mitigation

Immediately after receiving the information memorandumdeclaration from the client Murabaha contract should be executed on the same day based on constructive possession now on this stage following conditions of a valid sale are fulfilled

69 | P a g e

Condition of valid sales Parties to the contract for making offer amp acceptance Ownership of the subject matter with the seller Possession over the goods must be with the owner of the goods physical or constructive

(free charge having full information that there is no claim of ant third party over the goods like Mortgage pledge hypothecation charge)Price (saman) Lawful Consideration

63 Murabaha Documentation by SIBL

There are a number of documents involved in a Murabaha financing transaction The most essential of these documents that is produced by SIBL are

Master Murabaha Finance Agreement (MMFA)

Agency Agreement

Order Form

Summary Payment Schedule

Declaration

Master Murabaha Finance Agreement

Itrsquos an agreement between the client and the bank whereby the client agrees to purchase goods from the bank from time to time as per the terms and conditions of this agreement

MMFA is an over all facility agreement under which various Sub-Murabaha may be executed from time to time Hence it needs to be signed once at the time the facility is sanctioned

Agency Agreement

The client is appointed by the bank as its agent to purchase goods This agreement needs to be signed once between the client and the bank The disbursement of funds is done under this agreement Client needs to fill out the list of assets which it will purchase

Order Form Summary Payment Schedule

These documents are required for ach disbursement Sub-Murabaha tranche

Declaration

Declaration is to be signed by the customer immediately after it has purchased the goods This document establishes the actual sale transaction i-e transfer of ownership of goods from the bank to the customer At this stage the specific details of the assets must be known i-e quantity quality etc proper timing of declaration is extremely important

70 | P a g e

64 Practical Issues in Murabaha-Observation from SIBL

1 Timing of lsquoOffer amp Acceptancersquo

2 Rollover in Murabaha

3 Rebate on Early payment

4 Penalty in Late payment

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

8 Profit recognition

9 Training of Customer amp Bank staff

10 Process of Murabaha differ from product to products

bull A Murabaha financing arrangement consists of a series of documents to be executed at various stages the sequence and timing of which is extremely important

bull Through this client and the bank execute an important step of a valid Murabaha sale ie Offer amp Acceptance

bull This is to be signed by the customer when it has purchased and taken possession of the goods as the Bankrsquos agent

bull Offer amp Acceptance must be signed while the goods are still in existence and have not been used in the production process or sold to some other entity

bull Rollover in Murabaha is not allowed since each Murabaha transaction is for the purchase of a particular asset A new Murabaha can only be executed for the purchase of new assets

bull It is advisable that whenever practicable there must be a gap of 1-2 days between maturity of the previous Murabaha and disbursement of the new one

3 Rebate on Early Payments

bull If the customer makes early payment and there is no commitment from the institution in respect of any discount in the price of Murabaha than the institution has the sole discretion in allowing them the rebate

71 | P a g e

bull It is not recommended to make it a practice and must be avoided in normal course of business Such issue if arises should be brought in the knowledge of Shariah advisor

4 Penalty on Late Payments

bull As soon as the Murabaha is executed the Murabaha price becomes a receivable for the Bank Hence any amount charged over and above the amount will be Riba

bull However it is permissible to have an undertaking from the customer to pay an amount of money or a percentage of the debt to be donated to charitable causes in the event of delay in paymentinstalments

5 Subject Matter of Murabaha

bull Goods must exist at the time of execution of Murabaha

bull Murabaha cannot be done in all commodities eg such as currencies gold silver

bull Murabaha cannot be used for paying utility bills wages overhead expenses etc

bull General rules of sale related to subject matter must be followed

6 Purchase Evidence

bull In order to ensure that the customer actually purchased the assets as claimed the customer is required to submit asset purchase evidence along with Offer amp Acceptance

bull The purchase evidence must confirm that the asset purchase took place after the agency agreement

bull Asset purchase may be in the form of Invoices delivery orders truck receipts etc

6 Purchase Evidence

bull In some cases however it may be too burdensome for the client to submit all the invoices as the number of invoices may run into hundreds

bull For example cotton purchases are generally in small quantities from various sources and hence for each Sub-Murabaha there may be too many invoices to submit It is suggested to furnish considerable sample of invoices along with summary of all purchases

7 Direct Payment in Murabaha

bull In many cases the disbursement is made to the customer as an agent of the bank

bull In order to ensure transparency of the Murabaha it is preferable that disbursement payment be made directly to the supplier

8 Profit Recognition in Murabaha

bull Generally in Murabaha transaction there are in two stages

72 | P a g e

bull Investment Stage (Agency to Purchase)

bull Financing Stage (Declaration to payment)

bull The profit for the Murabaha transaction can be recognized after the goods are sold by the bank to the customer

9 Training of Customers amp Bank staff

bull Proper training amp understanding of is very important for

bull Bank staff dealing with the Murabaha

bull Customers purchase officers amp accounts staff

10 Process of Murabaha differ from product to product

bull Application of Murabaha is not simple for all products

bull Its application differs from products to products like

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

Therefore the RMRO dealing with the customer needs to understand and define step wise process flow along with the investment approval for each new customerindustry

65 Implementation of Murabaha Process Flow

bull Key points to check

ndash Customer Purchasing Cycle

ndash Inventory holding period

ndash Inventory holding method

ndash Payment terms to supplier

ndash Mode of Payment

ndash Storage warehousing facility

ndash Physical Inspection

ndash Timing of OfferAcceptance

ndash Other industrygoods specific parameters

73 | P a g e

Case 1- Murabaha for Vehicles

ABC Suzuki Autos is a proprietorship concern running a vehicle showroom The proprietor purchases cars of different models for Suzuki directly from the manufacturer for further resale in the market The delivery time varies from 3 months to 5 months and 100 payment is advance

bull The client has approached SIBL branch for Murabaha Facility amounting to Tk 25 million for purchase of vehicle The Murabaha facility will be for one year at a rate of 17 pa

bull Here the task is to suggest the step wise process flow documentation amp calculation

involved in the above case

Case 1 ndash Process Flow

Execution of MMFA and Agency with ABC Suzuki Autos after approval of Limit

bull ABC Suzuki Autos requests (via Order Form) for bookingpurchase of vehicles from Suzuki Co worth Tk 25 mln

bull SIBL issue Purchase order along with Pay Order in favor of Suzuki Co for booking of vehicles

bull Upon completion of the Order after 5 months Suzuki will intimate SIBL along with asset

description (engineChassis No etc)

SIBL will intimate ABC Autos about availability of vehicles ABC autos will submit Declaration (after 5 months) along with Summary Payment Schedule

bull SIBL will accept Declaration and will issue Delivery Order along with Transfer Letter in favor of ABC Autos

bull On the due date (one year from the date of disbursement) ABC Autos will pay the Contract

Price of Murabaha to SIBL

Contract Price = 25 mln (1 + (k + 3))

66 Payment Calculation

Lump Sump Payment

Financing amount Tk 100 million

Profit Rate Tk 16 per annum

(Based on experience and weight)

Tenor 1 year

Payment of Murabaha price Lump sump payment

Amount due of First year Tk 116 million at the end

74 | P a g e

Contract price

(Murabaha selling Price) Tk 116 million

Four Unequal Installments

Tenor 1 year

Payment of Murabaha price four unequal installments

Amount due

Tk 4 million (= 0164100) at the end of first 3 quarters

Tk 104 million (= 100+4) at the end of the last quarter

Contract price Tk 116 million

Four Equal Installments

Tenor 1 year

Payment of

Murabaha price four equal installments

Amount due Tk 2755 million (based on n=4 r=4 PV=100) at the end of each quarter

67 Accounting Procedure to Murabaha by SIBL

Measurement of asset value at accosting by SIBL Concepts of Financial Accounting for SIBL and Financial Institutions stipulates that historical cost shall be the basis used in measuring and recording the assets at the time of acquisition Therefore the assets possessed by the bank for the purpose of selling them on the basis of Murabaha purchase order shall be measured at the time of their acquisition on an historical cost basis In the cases where the asset value declines below cost whether due to damage destruction or from other unfavorable circumstances 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 promise If the bank finds that there is an indication of possible non-recovery of the costs of goods available for

75 | P a g e

sale on the basis of Murabaha to the purchase order who is not obliged to fulfill his promise the asset shall be measured at the cash equivalent (ie net realizable) value This shall be achieved by creating a provision for a decline in the asset value to reflect the difference between acquisition cost and the cash equivalent value

Potential Discount to be Obtained after Acquisition of the Asset

(a) In cases where the bank is likely at the time 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 subsequently such discount shall not be considered as revenue for the Islamic bank instead the cost of the relevant goods shall be reduced by the amount of the discount Consideration should be given to the impact this will have on both the profits of the current period and future deferred profits

(b) The discount may however be treated as revenue for the bank if this is decided by the Shariah supervisory board of the Islamic bank Such revenue shall be recognized in the income statement

Murabaha Receivables

Short-term or long-term Murabaha receivables shall be recorded at the time of occurrence at their face value Murabaha receivables are measured at the end of the financial period at their cash equivalent value Thus receivables are valued at the amount of debt due from the customers at the end of the financial period less any provision for doubtful debts

Profits Recognition

Profits of Murabaha or Murabaha to the purchase order are recognized at the time of contracting if the sale is for cash or on credit not exceeding the current financial period

Profits of a credit sale which will be paid for either by means of one payment due after the current financial period or by installments over several future financial periods shall be recognized by using one of the following two methods

(a) Proportionate allocation of profits over the period of the credit whereby each financial period shall carry its portion of profits irrespective of whether or not cash is received This is the preferred method

(b) As and when the installments are received This method shall be used based on a decision by the Shariah supervisory board of the bank or if it is required by the Supervisory authorities

Deferred Profits

76 | P a g e

Deferred profits shall be offset against Murabaha receivables in the statement of financial position

Early settlement with deduction of part of profit

Deduction of part of profit at the time of settlement If a client accelerates his payment of one or more installments prior to the date specified for such payment the bank may deduct part of the profit to be agreed upon between the bank and the client at the time of settlement The deducted amount shall be credited to the Murabaha receivable account and excluded from the profit recognized in respect of the installments

Deduction of part of the profit after settlement

The same accounting treatment applies if the client accelerates his payments one or more installments prior to the time specified for such payment and the bank did not allow the client a deduction of part of the profit but asked the client to pay the full amount and thereafter the bank reimbursed the client with part of the profit

Procrastination in payment by or insolvency of the client

Procrastination If the client is delinquent in paying his debt installments then any additional amount received by the Islamic bank from the client as a penalty (either by mutual agreement or by court ruling) shall be treated according to what the Shariah supervisory board of the Islamic bank deems appropriate either as

a) Revenue to the Islamic bank or

b) An allocation to a charity fund

Insolvency If it becomes evident that the clients non-payment was due to insolvency then the

bank cannot ask the client to pay any additional amount by way of penalty

68 Practical Example Case Study - Murabaha Investment to RT International-accounting process and behavior of mode

Below is the case study for the understanding of Murabaha transactions carried out at Social Islami Bank Limited in various scenarios

RT INTERNATIONAL a valued client of Social Islami Bank Limited enjoying a Bai-muajjal revolving limit facilities of Tk 1000 lac to doing poultry business based on its own firm in Pubail gazipur All the related papers are submitted The client secured her loan facility by 36428 decimal lands at Niler para Gazipur Sadarthe head office approved the proposal the other details as follows table

77 | P a g e

Example Amount in Tk

Purchase pricecostprincipal 1000000

Profit rate 10

Tenure One year

Total profit on transaction 100000

Sale price (contract price) 1010000

Date of disbursement to suppliercustomer January 012009

Date of culmination of Murabaha transaction January 152009

Date of maturity of Murabaha December 31 2009

Scenario A-When there is bullet payment of profit and Cost (Principal) at the end of the period

1) At the time of payment to the client for the purchase of goods amp request the bank to disburse direcly to the party Ac (but no voucher is found) by the bank the transaction will be accounted for as follows

January 01 2009

Dr Advance against Murabaha (BS Asset side) 10 00000

Cr Party Account (BS Liability side) 10 00000

2) At the Culmination of Murabaha ie at the time of sale of goods to the customers with signing of Declaration by the bank and the client following entries would be passed

January 15 2009

Dr Murabaha Financing 10 00000

Dr Unearned Murabaha Profit Receivable 100000

Cr Advance against Murabaha 10 00000

Cr Deferred Murabaha Income 100000

3) Booking of Accrual of profit 10 from the date of disbursement to the date of culmination the following entry would be passed [(10 00000 x 10) x 15 365]

78 | P a g e

January 15 2009

Dr Deferred Murabaha Income 4100

Dr Murabaha Profit Receivable 4100

Cr Income on Murabaha Financing 4100

Cr Unearned Murabaha Profit Receivable 4100

4) Booking of Accrual of profit 10 for remaining days of the month

the following entry would be passed [(10 00000 x 10) x 16 365]

January 31 2009

And so on this entry will be passed at the end of EACH month till maturity for the accrual of profit

Disclosure in Balance Sheet as on January 31 2009

Murabaha receivable-gross 11 00000

Less Deferred Murabaha Income 10 00000- (10 00000x10x31365) (91510)

Murabaha Profit Receivable shown in other assets (8490)

Murabaha Financing Receivable 100000

5) On Maturity of Murabaha transaction ie on December 31 2009 and at the time of receiving of final payment following entry would be passed

December 31 2009

Dr Party Bank Ac 11 00000

Cr Murabaha Financing 10 00000

Cr Murabaha Profit Receivable 100000

79 | P a g e

Scenario B-In case Declaration is not received on January 15 2009 and is received on February 15 2009

1) At the time of payment to the client for the purchase of goods on behalf of bank or directly to the supplier by the bank the transaction will be accounted for as follows

January 01 2009

Dr Advance against Murabaha 10 00000

Cr Pay Order Party Account 10 00000

On January15 2009

No entry would be passed

At the end of First Month ie January 31 2009

No entry would be passed for accruals of profit as Declaration has not been received from the customer

2) On February 15 2009 at the culmination of Murabaha ie at the time of sale of goods to the customers with signing of Declaration by the bank and the client the following entries would be passed

February 15 2009

Dr Unearned Murabaha Profit Receivable 1 00000

Cr Deferred Murabaha Income 1 00000

3) Booking of Accrual of profit 10 from the date of disbursement to the date of culmination the following entry would be passed [(10 00000 x 10) x (31+15) 365]

February 15 2009

80 | P a g e

4) Booking of Accrual of profit 10 for remaining days of the

month the following entry would be passed [(10 00000 x 10) x 13 365]

February 28 2009

NOTE In case the Murabaha declaration is NOT received on the due date NO Entry would be passed

until the declaration is received

Disclosure in Balance Sheet as at February 28 2009

Less Deferred Murabaha Income 10 00 00- (10 00000x10x (31+28)365) (83840)

Murabaha Financing Receivable 10 00000

5) On Maturity of Murabaha transaction ie on December 31 2009 and at the time of receiving of final

payment following entry would be passed

December 31 2009

Cr Murabaha Profit Receivable 1 00000

On the first date of 2010 the client has Tk100 000 principal outstanding As profit is

forbidden by Shariah to be valid after December 31 2009 The bank continuing charged profit

81 | P a g e

5) After expiring maturity of Murabaha transaction ie On December 31 2009 and at the time of receiving of final payment on January 31 2010 following entry would be passed

1ST JANUARY 01 2010

Dr Compensation Receivable 10 000

Cr Deferred Murabaha compensation charged 10000

31st January 2010

Dr Party Bank Ac 100833

Cr Compensation Income 833

Rest Tk 9167 will be given as rebate

Dr Rebate on Compensation Receivable 9167

Cr Party Ac 9167

amp the account is closed

82 | P a g e

Profits Recognition

should be an economic decision For a trader the less time an item spends in the inventory the more efficient the trade

Fig Investment in different sub-modes of Murabaha

Here in the figure the proportionate investment to different modes under Murabaha where Bai-Muazzal under Murabaha shows higher percentage almost 80 of total investment by SIBL

61 Steps of Murabaha Investment

In the light of the aforementioned principles in the earlier chapters SIBL use the Murabaha as a mode of finance by adopting the following procedure

STEP 1 CLIENT AND BANK SIGN AN AGREEMENT TO ENTER INTO MURABAHA

The client and the Bank sign an over-all agreement whereby the institution promises to sell and the client promises to buy the commodities from time to time on an agreed ratio of profit added to the cost This agreement may specify the limit up to which the facility may be availed

62 | P a g e

Murabaha

63 | P a g e

Murabaha

Agency Agreement

Murabaha

Agency Agreement

64 | P a g e

SIBLCLIENT

Offer to purchase

SIBLCLIENT

Murabaha

Agreement

Transfer of Title

General Mechanics

Purpose

Party Relationship

Bankrsquos Status

Promisor

65 | P a g e

Promisee

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

Risk Mitigation

66 | P a g e

3 Purchase Advice

Purpose

Party relationship

Agency

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

67 | P a g e

Risk Mitigation

For example

45 days= x

842000360

x = BDT 103808

Purpose

Relationship

Risk Involved

68 | P a g e

Risk Mitigation

69 | P a g e

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

63 | P a g e

Murabaha

Agency Agreement

Murabaha

Agency Agreement

64 | P a g e

SIBLCLIENT

Offer to purchase

SIBLCLIENT

Murabaha

Agreement

Transfer of Title

General Mechanics

Purpose

Party Relationship

Bankrsquos Status

Promisor

65 | P a g e

Promisee

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

Risk Mitigation

66 | P a g e

3 Purchase Advice

Purpose

Party relationship

Agency

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

67 | P a g e

Risk Mitigation

For example

45 days= x

842000360

x = BDT 103808

Purpose

Relationship

Risk Involved

68 | P a g e

Risk Mitigation

69 | P a g e

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

64 | P a g e

SIBLCLIENT

Offer to purchase

SIBLCLIENT

Murabaha

Agreement

Transfer of Title

General Mechanics

Purpose

Party Relationship

Bankrsquos Status

Promisor

65 | P a g e

Promisee

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

Risk Mitigation

66 | P a g e

3 Purchase Advice

Purpose

Party relationship

Agency

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

67 | P a g e

Risk Mitigation

For example

45 days= x

842000360

x = BDT 103808

Purpose

Relationship

Risk Involved

68 | P a g e

Risk Mitigation

69 | P a g e

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

General Mechanics

Purpose

Party Relationship

Bankrsquos Status

Promisor

65 | P a g e

Promisee

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

Risk Mitigation

66 | P a g e

3 Purchase Advice

Purpose

Party relationship

Agency

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

67 | P a g e

Risk Mitigation

For example

45 days= x

842000360

x = BDT 103808

Purpose

Relationship

Risk Involved

68 | P a g e

Risk Mitigation

69 | P a g e

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Promisee

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

Risk Mitigation

66 | P a g e

3 Purchase Advice

Purpose

Party relationship

Agency

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

67 | P a g e

Risk Mitigation

For example

45 days= x

842000360

x = BDT 103808

Purpose

Relationship

Risk Involved

68 | P a g e

Risk Mitigation

69 | P a g e

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

3 Purchase Advice

Purpose

Party relationship

Agency

Risk Involved

Risk Mitigation

Purpose

Party Relationship

Agency

Risk Involved

67 | P a g e

Risk Mitigation

For example

45 days= x

842000360

x = BDT 103808

Purpose

Relationship

Risk Involved

68 | P a g e

Risk Mitigation

69 | P a g e

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Risk Mitigation

For example

45 days= x

842000360

x = BDT 103808

Purpose

Relationship

Risk Involved

68 | P a g e

Risk Mitigation

69 | P a g e

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Risk Mitigation

69 | P a g e

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Agency Agreement

Order Form

Declaration

Agency Agreement

Declaration

70 | P a g e

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

5 Subject Matter

6 Purchase Evidence

7 Direct Payment

71 | P a g e

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

6 Purchase Evidence

72 | P a g e

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

1048633 Sugar cane

1048633 Shares

1048633 Leather

1048633 Cotton

1048633 Gas

1048633 Petrol

73 | P a g e

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Lump Sump Payment

Tenor 1 year

74 | P a g e

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Contract price

Tenor 1 year

Amount due

Tenor 1 year

Payment of

75 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Deferred Profits

76 | P a g e

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

77 | P a g e

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Profit rate 10

Tenure One year

January 01 2009

January 15 2009

78 | P a g e

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

January 15 2009

January 31 2009

December 31 2009

79 | P a g e

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

January 01 2009

On January15 2009

February 15 2009

80 | P a g e

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

February 28 2009

December 31 2009

81 | P a g e

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

1ST JANUARY 01 2010

31st January 2010

Cr Party Ac 9167

82 | P a g e

Profits Recognition

Documents

Chap- 6 SIBL Experince of Murabaha Financing