Murabaha Where the Customer Already Took Delivery
An Islamic bank approves a PKR 150 million Murabaha facility for a sugar mill's working capital. The bank appoints the customer as its agent to purchase sugar from a nominated supplier. The file shows the customer bought the sugar and took delivery on 3 March, with the invoice in the customer's name. The bank's purchase confirmation is dated 5 March, the bank paid the supplier on 6 March, and the Murabaha sale agreement with the customer is dated 5 March. The relationship manager says the transaction is 'substantially compliant' because the bank paid the supplier. The facility letter also imposes a 3% per annum late-payment penalty and says the amount will be added to the bank's income. The bank's profit distribution pool for depositors includes all such penalty recoveries.
1. Identify the Shariah non-compliance issues in the transaction sequence.
Read the worked answer
The bank must acquire ownership of the goods and bear the ownership risk before selling them to the customer. Here, the customer purchased and took delivery on 3 March in its own name. The bank's purchase confirmation is dated 5 March and payment was made on 6 March, so the bank appears to have sold goods it did not yet own and may never have possessed or risked.
The agency arrangement is also compromised: an agent cannot buy the bank's goods for itself before the bank's ownership is established. The invoice in the customer's name supports the conclusion that the bank was not the buyer. The sale agreement dated before payment and before any documented ownership transfer compounds the problem. 'Substantially compliant' is not a valid standard; the sequence is either compliant or not.
2. How should the bank regularise the transaction and structure future Murabaha facilities?
Read the worked answer
The bank should stop further disbursement and refer the file to the Shariah advisor. If the goods have already been consumed, the transaction may need to be unwound or regularised through a properly documented alternative, with any impure profit purified. The bank should not simply backdate documents.
For future facilities, the bank should either purchase directly from the supplier or use a clear agency agreement under which the agent purchases in the bank's name and as the bank's agent. The invoice and delivery evidence should show the bank as buyer or the agent acting for the bank. The bank must assume ownership risk, even briefly, before executing the Murabaha sale. The sale price, profit and payment schedule should be fixed at that point.
3. How should the late-payment penalty and the profit distribution pool be treated?
Read the worked answer
A late-payment penalty in Murabaha should not be treated as bank income. It is generally structured as a charitable contribution to discourage deliberate delay; it should be credited to a charity account and not to the bank's profit and loss account. Including it in the depositors' profit distribution pool would pass on a penalty as if it were legitimate profit.
The bank should amend the facility letter, segregate any penalty recovered, and review the profit distribution pool to remove such amounts. The Shariah advisor should approve the charity disbursement policy and the exclusion from depositors' profit.