Commodity Murabaha for a Cash-Short Exporter
A Karachi-based textile exporter with Rs 900 million annual turnover asks its Islamic bank for Rs 180 million of working capital. The credit memo records that the funds will pay salaries, settle an overdue Chinese supplier and cover a temporary cash gap. Because the customer needs cash rather than goods, the product team proposes a commodity murabaha: the bank buys palm oil from Broker A, sells it to the customer on six-month deferred payment at cost plus 12%, and the customer immediately sells it through Broker B for cash. The commodity remains in a Singapore warehouse throughout and never moves. The bank's approved product programme covers Murabaha for the purchase of raw materials and machinery only. The Shariah Advisor has refused to sign the credit memo and asks for a written opinion. The corporate banking head argues that commodity murabaha is widely used by Islamic banks and that the profit is therefore halal. The customer has no genuine need for palm oil and has never traded commodities.
1. Is the proposed commodity murabaha Shariah-compliant? Distinguish Murabaha from Tawarruq and apply the distinction to these facts.
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Issue. The label 'Murabaha' does not decide the matter; the substance of the transaction does.
Murabaha is a sale of a specific, existing, halal asset that the bank owns and possesses before selling it onward at cost plus a disclosed mark-up. The bank must bear ownership risk, and the buyer must genuinely want the asset.
Tawarruq is the purchase of a commodity on credit and its sale to a third party for cash in order to obtain liquidity. When the bank arranges both legs, it is organised tawarruq, often called reverse murabaha.
Application. Here the bank never takes delivery, Broker B is pre-arranged, the commodity stays in a warehouse, and the customer's purpose is cash to pay salaries. The palm oil is a legal fiction. The bank would earn a mark-up on what is economically a cash advance, which is the Riba the structure is supposed to avoid. The transaction is not a genuine Murabaha.
Regulatory dimension. SBP's Shariah Advisory Board has permitted tawarruq only in limited, specified transactions such as interbank liquidity and deposit management, not as a general corporate cash-financing device. The bank's product programme also does not cover it.
Conclusion. The Shariah Advisor should decline to certify the transaction. The bank should not book it.
2. What Shariah-compliant alternatives could meet the customer's genuine need, and what governance steps must precede any new product?
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Alternatives. The bank should first separate the customer's needs:
- Salaries and general cash gap: these are not asset purchases. A Qard Hasan would be permissible but earns no profit; the bank must decide whether it wishes to lend. A Musharakah or Modaraba working-capital facility could share in the business's profit and loss, but requires genuine participation and proper documentation.
- Supplier payment: if the bank can purchase the actual goods from the supplier and sell them to the customer, a true Murabaha is possible. The bank must take ownership and bear risk, and the goods must be identifiable and halal.
- Export receivables: Salam or Istisna may fit if there is a defined future sale or manufacture, subject to precise specifications, delivery dates and quality terms.
Governance. Before any new structure is offered, the bank must:
- Prepare a product programme and obtain the Shariah Advisor's written approval.
- Submit the product to SBP's Islamic Banking Department for approval where required.
- Amend policies, accounting and disclosure so that the product is not marketed as a cash loan.
- Train relationship managers not to use commodity murabaha as a generic liquidity product.
Judgement. The bank should offer a genuine asset-based facility or a Qard, not disguise a cash advance as a sale.
3. What conditions must a valid Murabaha of raw materials satisfy, and what should the bank's credit and Shariah files record?
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Conditions for validity.
- Existing, owned asset: the bank must own the raw material before selling it. Ownership cannot be a paper entry only.
- Possession (qabd): the bank must take constructive or actual possession and bear the risk of loss or damage before onward sale.
- Identified and halal: the goods must be specified, measurable, and permissible in themselves.
- Known price: cost and mark-up must be disclosed and fixed at contract; the sale price cannot float.
- No Riba or penalty income: late payment charges, if any, must be donated to charity and not booked as income.
- Genuine commercial purpose: the buyer must want the goods, not the cash.
File records. The credit file should contain the purchase invoice, evidence of the bank's ownership and possession, the Murabaha sale contract, delivery evidence and the customer's acknowledgement of the goods. The Shariah file should record the Shariah Advisor's approval, the product programme reference and any conditions imposed.
Judgement. If the bank cannot evidence ownership and possession, it should not call the transaction Murabaha.