Understanding Islamic Finance - Doha Academy of Tertiary Studies

Murabaha and Musawamah 21510. The subject of sale should be lawful and an object of value. A thing having no valueaccording to the usage of trade cannot be sold; similarly, the subject of sale should notbe a thing used for any prohibited purpose, e.g. pork, wine, etc.11. The subject of sale should be specifically known and identified to the buyer, i.e. it mustbe identified by pointing out or by detailed specifications so as to distinguish it fromother units of goods not sold. For example, A says to B: “I sell 100 cotton bales outof the bales lying in that building”, if A does not identify the bales, the sale is void,because in the case of loss to the cotton, it would be difficult to ascertain who sufferedhow much loss.12. The delivery of the sold commodity to the buyer should be certain and should notdepend on a contingency or chance. For example, if A sells his car, which has beensnatched, to a person in the hope that he will manage to get it back, the sale is void.13. A certain price is stipulated once and for all. For example, A says to B: “If you pay inone month, the price is $50 and if in two months, the price will be $55”; as the priceis uncertain, the sale is void. A can give the two options to B, but B must select oneoption to have one definite price to validate the sale.14. The sale must be unconditional. A conditional sale is invalid, unless the condition is apart of any usual practice of trade not expressly prohibited by the Sharī´ah.There are also certain other conditions which are applicable to each form of sale separately.The conditions related to Bai‘ Murabaha are discussed below.9.3 MURABAHA – A BAI‘ AL AMĀNAHFor the purpose of this chapter, forms of Bai‘ can be described from the point of view of the costof any item to the seller – we may call it the original cost. Since the original cost or purchase priceis the starting point in Bai‘ Murabaha, it is appropriate to refer briefly to all such lawful forms ofBai‘ which become effective with express mention of the original cost. Such a classification ofBai‘ includes Tawliyah, Wadhi‘ah or Mohatah and Murabaha. These forms require an honestdeclaration of the cost by the seller and as such are referred to in the Fiqh literature as Buyoo‘ alAmānāt (fiduciary sales). 3 Among fiduciary sales, Tawliyah means resale at the stated originalprice with no profit or loss to the seller. Wadhi‘ah or Mohatah means resale at a discount from theoriginal cost. The last one, Murabaha, is sale with a fixed profit margin over the cost. Another,and the most common, form is Bai‘ Musawamah, which is an ordinary sale and signifies salefor a price which is mutually agreed upon between the seller and the purchaser without anyreference to the purchase price/cost to the seller. In other words, it refers to bargaining on priceof the commodity being traded. All these forms could be either on a spot or deferred paymentbasis. While in Musawamah the parties freely agree on the price, in Murabaha the seller informsthe buyer of his original cost and the parties agree on a stipulated profit to be added to that cost.9.4 BAI‘ MURABAHA IN CLASSICAL LITERATUREMurabaha is derived from Ribh, which means gain, profit or addition. In Murabaha, a sellerhas to reveal his cost and the contract takes place at an agreed margin of profit. This contract3 Al Jaziri, 1973, p. 300.