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Subject : Ruling on Memorandums of Understanding Reached before the Conclusion of Murabaha Contracts

Fatwa Number : 3172

Date : 11-02-2016

Classified : Current Financial Issues

Fatwa Type : Search Fatawaa

Question :

Is it permissible to conclude a Pre-Financing Contract before concluding a Murabaha or Istisnaa` contract?

The Answer :

All perfect praise be to Allah; The Lord of The Worlds, and may His blessings and peace be upon our Prophet Mohammad and upon all his family and companions.

 There is no harm in concluding a general " Memorandum of understanding" between the contracting parties to conclude pre-financing contracts in the future, in terms of the sums to be financed, the period or other conditions. However, such "Memorandums" are considered a promise, not a binding contract.

This has been ratified by the Accounting and Auditing Organization for Islamic Financial Institutions(AAOIFI). Refer to the Sharia standard No.(13), article(3/1).

The above "Memorandums" become binding upon the completion of the actual contract between the two parties, so the agreed upon terms become part of the financing contract, save if it was agreed to amend some of its terms. However, it is important to realize that each contract has its own Sharia terms and rules, which render it valid or invalid. And Allah knows best.



PS: Istisnaa`{Making upon customer`s request}, Murabaha{Selling an object while informing the purchaser of its original price and the profit he is getting in this deal.}



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