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Procedures To Be Adopted By Bank To Ensure Valid Murabaha Transaction

What are the essential procedures that must be adopted by a bank to ensure the validity and substance of its Murabaha transactions?

A Murabaha is a permissible mode of financing in the Shariah. However, it is often misused, such that, in substance, it takes the form of conventional financing. In order to ensure a valid and substantial Murabaha transaction that conforms to the spirit of the Shariah, the bank should, at the very least, undertake to carry out the following procedures:

1) Purchase goods in its own name or through an agent.

2) Pay the price of goods directly to the seller, without the involvement of the client.

3) Receive the goods and place them in its custody before transferring to client.

4) Keep in its possession all relevant documentation that proves purchase in its own name and attach them to the Murabaha contract.

In addition to the above, the bank should ensure that the staff dealing with Murabaha clients is suitably trained in the above procedures.

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