Date : 28-05-2012

Question :

We are a financial institution that conducts Murabah to the purchase orderer. What are your observations on the following form of Murabaha contract?

The Answer :

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

We (Iftaa` Department) have reviewed the Murabah contract of the aforementioned institution and wish to place on record the following observations:

First: Annex of purchase order:

1- We believe it is necessary to add the word "and taking possession of it" when it was stated: "Had bought the goods described and "took possession of them" on (date)……We also stipulate adding this same word in article (3).

This is to make sure that the fund didn`t sell goods that it hadn`t taken possession of.

2- The first item of the annex stipulates that the annex is an integral part of the purchase order and should be read with it as one unit. It is feared that it may be understood from "making the purchase order and the annex as one unit" that the fund sold the commodity before it had actually possessed it, which is a breach of the terms of the contract of Murabah to the purchase orderer. Accordingly, we propose separating the annex from the purchase order, deleting the word "and its annexes" where it appears and changing the contract from {Annex of purchase order} to {Contract of Murabah to the purchase orderer}.

3- The second item of the annex states: "The right of the first party in claiming the bill/bills of exchange exists."

We should add "for what is left of its right." Thus, it should become: "The right of the first party in claiming what is left of its right in the bill/bills of exchange exists." This is because it isn`t permissible for the fund to claim the value of the bill/bills already paid by the purchase orderer. Rather, it should claim what is left of its right in it/them.

Second: Purchase order:

1-  Article (1), item (D) states: "The first party shall execute the request of the contractor."

However, it should be "the request of the purchase orderer."

2- We believe that it is necessary to place the Murabah to the purchase orderer, which is done through opening the documentary credit, in a separate contract from the Murabah contract done within the country`s borders. Accordingly, we suggest deleting articles (7, 8 and 9). The Iftaa` committee demands this deletion because those articles could involve violations of Sharia and issues of controversy. Thus, placing the Murabah to the purchase orderer in a separate contract prevents any violations of Sharia.

3- Article (12) is binding to the guarantor, even upon extension or renewal of accreditation.

We would like to know what is meant by this article, and how could the fund bind the guarantor with something new?!

4- Article (13) states that the statements and accounts of the fund are conclusive evidence that can`t be challenged and that the fund is trust worthy.

We believe that the accounts and the records of the fund suffice as evidence.

5- Article (16) states that the second party shall deposit with the first party the bills of exchange as guarantee……

We believe that this article should be deleted because binding the purchase orderer to make bills before the fund buys the goods makes him liable for their price although the fund haven’t taken possession of them, and this violates the conditions of Islamic Murabaha. However, if the article stated that the fund doesn`t have the right to use the bills of exchange save in accordance with their maturity dates and conditions, then this is permissible.{Kindly check the Sharia Standards for Murabaha (5/3).

6- Article (17) stresses financing Manfa‘ah/benefit (The usufruct associated with a given property, especially in leasing transactions).

We believe that Murabah on this kind should be placed in an independent contract, which has its special terms. 

7- Article (19) gave full freedom to the fund to unilaterally terminate the Murabaha contract and to charge the purchase orderer with all the expenses.

We believe that the termination of the contract should be done for a justified reason in order to prevent inflicting harm on the purchase orderer and eating up his wealth unjustly.

8- Article (21) states that the purchase orderer shall be liable to all the costs and damages that occur due to  variations made to the Murabaha contract for whatever reason.

We believe that the purchase orderer should be liable for these if that variation was caused by him alone. This is in order for the fund to be liable for any damages that could befall the commodity before it is transferred into the possession of the purchase orderer.

9- Article (24) states that the fund gives itself the right to add any obligations, which the purchase orderer could become liable for.

This leads to something unknown (Jahalah) because the obligations were specified upon conclusion of contract and were agreed upon by all parties. Thus, it isn`t allowed to burden the purchase orderer with any new obligations, and we suggest that it is necessary to delete this right. We also believe that this article should state that, in case the currency exchange rate varied, the purchase orderer should pay according to the rate on the day the commodity was delivered to him.

10- Article (27/A) states that the purchase orderer and the guarantor are obligated to pay any obligation to the fund and for whatever reason.

We propose adding: "will be included in this contract" after the statement "for whatever reason."

11- Article (27/C) states that the purchase orderer doesn`t have the right to object to any procedure conducted by the fund.

We believe that this article should be deleted because the law doesn`t approve of it.

12- Article (29) states that signing the last page of the contract is tantamount to signing all pages.

We believe that it is better to sign every page as a precautionary measure and to ward off dubiousness.

13- The special conditions state that the fund has the right to stop tranches of funding.

We would like to know what is meant by this because the Murabah contract rests on purchasing and selling a commodity and has no room for tranches of funding. And Allah, The Almighty, Knows Best.