Understanding Islamic Finance - Doha Academy of Tertiary Studies

224 Understanding Islamic Finance9.8.1 MPO – A Bunch of ContractsModern Murabaha also involves an agency relationship between the bank and any thirdparty or even the client. The Murabaha to Purchase Orderer in this form would comprisethree distinct contracts:1. A master contract which defines the overall facility to be availed, followed by an agreementto purchase or promise by the client to purchase the article when offered by thebank. Instead of being a bilateral contract of forward sale, the “agreement to buy” is aunilateral promise from the client which binds him and not the bank.2. An agency contract whereby the agent, who could be a client or any third party, has topurchase the item from the market or the supplier identified by the client and take itspossession on behalf of the bank; this should be separate from the Murabaha agreement. 433. The actual Murabaha contract. The actual Murabaha contract should be concluded whenthe bank owns the concerned commodity.Murabaha transactions that involve other contracts like promise, agency (Wakalah) andcredit along with an agreed rate of return for IFIs over the cost price lead to a number ofissues: should the promise be unilateral or bilateral, binding or nonbinding? What is theremedy if the client backs out? What should be the sequencing of the various actions of thebank and the client? When the actual Murabaha is to be executed, what happens if the clientmakes early payment or delays in making payment of the settled price? To what extent canthe bank’s loss be covered and mitigated? And last, but not least, what structure and modusoperandi of Murabaha can be adopted to fulfil the needs of various stakeholders along withensuring Sharī´ah compliance? We discuss these matters in the following sections.9.8.2 Promise to Purchase in MurabahaAccording to classical Fiqh rules, mere promises are not binding and cannot be compelledby the process of law. Although fulfilling a promise is advisable and violation reproachable,it is neither mandatory nor enforceable through the courts. 44 However, to many other jurists,promise can be enforced through courts of law. The third view (of some Maliki jurists) isthat promise is not binding in normal conditions, but if the promisor has caused the promiseeto incur some expenses or undertake some labour or liability on the basis of a promise, it ismandatory on him to fulfil his promise for which he may be compelled by the courts.Shaikh Muhammad Taqi Usmani, after detailed discussion on the subject, contends:“Therefore, it is evident from these injunctions that fulfilling promise is obligatory. However,the question whether or not a promise is enforceable in courts depends on the nature of thepromise. But in commercial dealings, where a party has given an absolute promise to sell orpurchase something and the other party has incurred liabilities on that basis, there is no reason whysuch a promise should not be enforced. Therefore, on the basis of the clear injunctions of Islam,if the parties have agreed that this particular promise will be binding on the promisor, it will beenforceable. If the promisor backs out of his promise, a court or any arbitration may force himeither to purchase the commodity or pay actual damages to the promisee seller. The actual damageswill include the actual monetary loss suffered by him, but will not include the opportunity cost”. 4543 AAOIFI, 2004–5a, Standard on Murabaha, p. 130.44 This is the view of Imam Abu Hanifa, Imam Shafi‘e, Imam Ahmad and of some Maliki jurists, cf. Usmani, 2000a, pp. 121, 122.45 Usmani, 2000a, pp. 125, 126; Resolution Nos. 2 and 3, 5th session of the Islamic Fiqh Academy.