Yumyme ChocolatesNAMES: HUSSAIN ALIMUSTAFA HASSANABDULLA ALTURABI

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Table of content: Definitions and legal/Shari’a basis of Murabaha

Advantages and disadvantages of the Murabaha compared to other modes of finance

The required forms and documents used in Al-Baraka

The procedures for providing the money in Al-Baraka

The risks involved in Murabaha contract and how can they be mitigated

Definition Murabaha

Steps:1. Discuss establishing chocolate factory2. Buy back + profit margin

◦ Ordinary murabaha ◦ Murabaha sales connected with a promise

3. First sale contract takes place◦ Customer is agent

4. Contractor begins construction5. Client will buy back

Legal/Sharia Basis Contracts based on Quran and Sunna

Examples of fatwas:1. Meaning and purpose (i.e. simply replace “interset” with “profit”)2. Promise (Malki vs others)3. Insurance 4. Commission via administrative costs5. Property as guarantee 6. Bank can use a mode of finance with other banks7. Customer bears costs if purchase promise not executed

Advantages of MurabahaMudaraba Murabaha

• High level of risk• Responsible for losses if no negligence

• There is guarantor

Ijara Murabaha

• Major maintenance for bank • Ownership will transfer to client• So client is responsible for defects

Istisna Murabaha

• Bound to one contractor • Multiple contractors

Other modes of finance Murabaha

• Doesn’t include it • Revovling Murabaha

Other modes of finance Murabaha

• Doesn’t include it • Retain 50% of costs in case of default

Musharaka Murabaha

• Provide working capital • Only down payment

Disadvantages of MurabahaIstisna Murabaha

• No need to reveal costs and profit • Have to quote all costs

Ijara Murabaha

• No upfront rentals • There’s down payment

Ijara Murabaha

• Flexible repayment terms • No flexibility • Legal consequences + overdue repayments

Musharaka and other modes Murabaha

• Less costly for bank • Costlier since bank is payment full amount at first

The procedures for providing the moneyStep 1: filling the application form and attaching the required documents

Step 2: analyzing the client application

Step 3: signing the facilities agreement and the offer letter

Step 4: sign an Agency contract (Wakala) – client trustworthy

The procedures for providing the moneyStep 5: Murabaha financing process:

•A- One off

•B- Revolving

Step 6: local purchase order

Step 7: payment request letter with an invoice

The procedures for providing the money

The required forms and documents used in Bank AL-Baraka:Application form

Required documents from the client

Credit Approval Routing Slip

Facilities agreement

Offer letter

Agency contract (Wakala)

Local purchase order

Invoice

Payment against invoice letter

RisksCredit Risk

Market Risk

Operational Risk

Credit RiskDefaults in payment

1% Late Payment

Postponed Cheques

Market Risk

Operational Risk

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