Bai- Mode-Bai-Murabaha

Bai- Mode-Bai-Murabaha:   

Meaning

The terms ‘Bai’ Murabaha have been derived form Arabic words Baiun and Ribhun. The word Baiun means purchase and sale a the word Ribhun means profit.  ‘Bai’ Murabaha  means sale on agreed upon profit.

Definition

    ‘Bai’ Murabaha may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods , permissible under Shariah and Law of the Country, to the Buyer at a cost plus  agreed profit  payable in cash  or on any  fixed future date in lump sum or within a fixed period by fixed installments. The profit mark up may be fixed in lump sum or in percentage of cost price of the goods.
    It may be noted here that in case of Bai’Muajjal and Bai-Murabaha, the Social Islami Bank Limited 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 the sale price of goods, it sells to the client. If the Bank does into purchase the goods directly purchased and received by the Client form the seller under Bai’Muajjal/Bai’Murabaha Agreement, that will be are remittance/payment of the amount on behalf of the Client, which shall be nothing but a loan to the Client and profit on this amount shall be nothing but Interest.
       
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 behalf of the Client or it is paid to the Client any profit on it will be Riba.

TYPES OF BAI’MURABAHA

Bai-Murabaha may be in Two types:-

(i) Ordinary Bai Murabaha

If there are only two parties- the seller & the buyer, where the buyer  is an ordinary trader purchases the goods from the market with out depending on any order or promise to buy thew same from him and sales those to am buyer for cost plus profit , the sale is called the ordinary Bai- Murabaha.

(ii) Bai- Murabaha order or Promise

If there are three parties , the buyer, the seller & the bank as an intermediary trader between the buyer & seller , where the Bank upon receipt of order from the buyer with specification & a prior outstanding promises to buy the goods from bank , purchases the order of goods & 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 BAI’ MURABAHA upon order and promise is generally used by Islamic banks, which undertake the purchase of commodities according to the specification requested by the clients and sale on Bai’ murabaha to one who ordered for the goods and promised to buy for its cost plus a mark up profit agreed upon previously by two parties, the bank and the client. 

In this bank , it is treated as a contract between the bank and the client under which the bank purchase the specific goods as per order and specification of the client and sales these to the ordering client at a cost plus agreed upon profit payable with in fixed future date in lump sum or fixed installations.

IMPORTANT FEATURES OF BAI- MURABAHA:

1.01    It is permissible for the Client to offer an order to purchase by the Bank particular goods     deciding its specification and committing himself to buy the same form the Bank on Bai’Murabaha  i.e. cost plus agreed upon profit. 
1.02    It is permissible to make the promise binding upon the Client to purchase from the Bank,     that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
1.03    It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the damages.
1.04    It is also permissible to document the debt resulting form Bai’Murabaha by a Guarantor, or a mortgage, or both like any other debt. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
1.05    Stock and availability of goods is a basic condition for signing a Bai’Murabaha Agreement, Therefore, the Bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai’Murabaha Agreement with the Client.
1.06    After purchase of goods the Bank must bear the risk of goods until those are actually delivered to the Client.
1.07    The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per contract.
1.08    The Bank shall sell the goods at a higher price than the purchase price to earn profit.
1.09    The price once fixed as per agreement and deferred cannot be further increased.
1.10    It is permissible for the bank to authorize any third party to buy or receive the goods on bank’s behalf .The authorization must be in a separate contract

2.0 Cost and Sale Price of the Goods:

A.    Purchase Price/Landed cost of the goods PLUS
B.    Other expenditures in connection with the Purchase, Transportation and Storage of the Goods incurred by the Bank before sale to the Client:
i.    Conveyance - TAIDA of Bank Official or the Agent, if any.
ii.    Commission Paid to the Agent, if any.
iii.    Cost of Remittance of Fund.
iv.    Transportation Cost up to Bank’s Godown (if not sold just after purchase).
v.    Transit Insurance and Incidental Expenses.
vi.    Other Expenses except interest incurred (if any). Interest element, if any, is to be paid by the Client himself.
vii.    Godown Rent and Godown Staff Salary (if the Goods are kept in the Bank’s Godown before sale to the Client).
C.    Total Cost Price (A+B) Tk…………………..     
D.    Estimated Profit of the Bank Tk………………    (Percentage of Profit………………)    
E.    Sale Price (C + D) Tk. ……………………..    (                               )

2.2.2 Bai-Muajjal:   

Meaning
The terms ‘Bai’ and ‘Muajjal’ have been derive form Arabic words Baiun and Ajalun. The word Baiun means purchase and sale a the word Ajalun means a fixed time or a fixed period. “Bai’Muajjal” means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit.
Definition
Bai’muajjal may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods (permissible under Shariah and Law of the Country), to the Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.
In this Bank, Bai’Muajjal is treated as a contract between the Bank and the Client under which the Bank sells to the Client certain specified goods, purchased as per order and specification of the Client at an agreed price payable within a fixed future date in lump sum or by fixed installments.

IMPORTANT FEATURES OF BAI- MUJJAL:

1.01    It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy the same form the Bank on Bai’Muajjal i.e. deferred payment sale at fixed price.
1.02    It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
1.03    It is permissible to take cash/collateral security to Guarantee the implementation of the promise or to indemnify the damages.
1.04    It is also permissible to document the debt resulting form Bai’Muajjal by a Guarantor, or a mortgage, or both like any other debt. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
1.05    Stock and availability of goods is a basic condition for signing a Bai’Muajjal Agreement, Therefore, the Bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai’Muajjal Agreement with the Client.
1.06    After purchase of goods the Bank must bear the risk of goods until those are actually delivered to the Client.
1.07    The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per contract.
1.08    The Bank sell the gods at a higher price than the purchase price to earn profit.
1.09    The price once fixed as per agreement and deferred cannot be further increased.
1.10    The Bank may sell the goods at one agreed price, which will include both the cost price and the profit. Unlike Bai’ Murabaha, the Bank may not disclose the cost price and the profit mark-up separately to the Client.

2.0 Cost and Sale Price of the Goods:

A.    Purchase Price/Landed cost of the goods PLUS
B.    Other expenditures in connection with the Purchase, Transportation and Storage of the
Goods incurred by the Bank before sale to the Client:
i.    Conveyance - TAIDA of Bank Official or the Agent, if any.
ii.    Commission Paid to the Agent, if any.
iii.    Cost of Remittance of Fund.
iv.    Transportation Cost up to Bank’s Godown (if not sold just after purchase).
v.    Transit Insurance and Incidental Expenses.
vi.    Other Expenses except interest incurred (if any). Interest element, if any, is to be paid by the Client himself.
vii.    Godown Rent and Godown Staff Salary (if the Goods are kept in the Bank’s Godown before sale to the Client).
C.    Total Cost Price (A+B) Tk…………………..     
    D.  Estimated Profit of the Bank Tk………………(Percentage of Profit………)    
E.  Sale Price (C + D) Tk. ……………………..       (            )

2.2.3 Bai-Salam:   

Bai-Salam contract means contracting for the purchase or sale of commodities or products on the basis of immediate payment of the price with a future delivery at an agreed upon date and quantity. It is a precondition in the Salam contract that the price quantity, qualities of commodities or products, date and modes of delivery etc are to be known to buyer and seller.

AAOIFI says  “A Salam transaction is the purchase of a commodity for differed delivery in exchange for immediate payment.”

  Application of Bai-Salam

Salam sales are frequently used to finance the agricultural industry. Banks advance cash to farmers today for delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop.

Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end product. In the meantime, the bank is able to market the product to other customers at lucrative prices. In addition, the Salam sale is used by banks to finance craftsmen and small producers, by supplying them with the capital necessary to finance the inputs to production in exchange for the future delivery of products at some future date.