Ethica Institute of Islamic Finance™

Is it permissible to stipulate that Murabaha installments be payable in foreign currency at the rate prevailing on the due date, in consideration of the fact that the bank has to pay for such goods in installments in foreign currency?

It is a condition for the validity of a contract that the contract price be known to both parties. In such a case, both the seller and buyer do not know the contract price, as it is contingent upon the currency rate prevailing in the future. Due to this and other ambiguities, such an arrangement is not permissible in the Shariah and should be avoided. Permissible alternatives to such a transaction would be:

• Executing and concluding Murabaha transactions in foreign currency. Foreign currency would be converted to the local currency on the date of purchase of goods from the exporter.

• To convert a Murabaha sale into a simple bargaining sale, where the bank estimates a price and enters into a contract with the customer based on this price. Later, this price can be changed with mutual consent of both contracting parties.

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