Ethica Institute of Islamic Finance™

How does the distribution of profit take place in a Murabaha before maturity?

If a bank only conducts a Murabaha and possesses only liquid assets, and the closing of accounts is to take place after 6 months, and a depositor wishes to make a withdrawal after 3 months, the depositor will only be returned his principal amount. After 6 months, at the time of the Murabaha’s maturity, his profit for 3 months is calculated and disbursed to him. If a depositor wishes to withdraw after 3 months while a bank conducts an Ijarah in addition to a Murabaha for a term of 6 months, and possesses liquid assets as well as fixed assets, the bank may take one of the following two steps: 1. The depositor may be given an amount decided mutually by the business partners. 2. The depositor may be given only his principal amount in addition to the profit rate announced for the period of 3 months. At the time of maturity of the business, once the total profit and loss is calculated, the amount that is owed to him by the bank is disbursed. Alternatively, the amount owed to the bank from him is retrieved. The bank must determine its course of action from the aforementioned options in advance in order to deal with a business partner who wishes to withdraw before maturity.

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