SS 8 · Trade

SS 8: Murabaha to the Purchase Orderer

What this standard is about

The standard covers murabaha to the purchase orderer. The customer asks the bank to buy a specific asset. The bank buys it, then sells it to the customer at cost plus an agreed profit, usually paid in installments. The standard covers the customer's promise to buy, the security deposit (hamish jiddiyah), how the bank acquires and takes possession of the asset, how the sale is concluded, and how the resulting receivables are handled. It does not cover other deferred-payment sales.

Why it exists

Murabaha to the purchase orderer is the workhorse of Islamic banking: car finance, equipment finance, trade finance. The standard makes sure the bank does real trading — buying and owning the asset before selling it — instead of disguised interest lending.

The key rules, simply put

Murabaha is a trust sale. The bank must disclose its cost and its profit margin to the customer.
The bank must own the asset before selling it. The customer must not buy it directly from the supplier first.
The customer's promise to buy can be binding or non-binding. A binding promise is backed by a resolution of the International Islamic Fiqh Academy.
If the customer breaks a binding promise, the bank may deduct only its actual loss from the security deposit. It cannot deduct its expected profit.
Once the sale price is agreed, it cannot be increased — including for late payment.
The bank may appoint the customer as its agent to buy from the supplier. The bank still carries the ownership risk.

An everyday example

Ahmed wants a car. He promises the bank he will buy it. The bank buys the car from the dealer for $20,000, takes ownership, then sells it to Ahmed for $24,000 payable over four years. The $4,000 markup is disclosed to Ahmed upfront.

Words to know

Murabaha — a cost-plus sale with disclosed cost and profit.
Hamish jiddiyah — a security deposit paid against a promise to buy.
Urbun — earnest money paid to secure a deal.
Riba — interest; any guaranteed extra on a loan. Not allowed in Islamic finance.

Source

AAOIFI Shariah Standard No. 8 — https://daralsharia.ae/docs/default-source/news-pdf/standard-8.pdf