Murabahah in Islamic Banking;

CIMB and Muamalat Berhad

Name

:Khairul Izwan Bin Haseng

Matric no :1317701
Lecturer

:Dr. Ibrahim Nuhu Tahir

Subject

:Fiqh for Economist 2

Section

:6

Introduction

Muraba a, muraba a or murba a (Arabic )is an Islamic expression for a deal

were te purcaser and mercant concede to te markup for te item(s) being sold.In late
decades it as turned into a term for "te most predominant financing component" in Islamic (i.e.
"saria agreeable"). As an Islamic financing structure, te dealer is te "loan specialist",
ordinarily offering someting te acquiring individual or organization requirements for teir
business. Te purcaser/borrower pays in occasional portions, and at a iger cost tan te
mercant/bank paid for te item(s), owever wit an overall revenue concurred on by bot
parties. Te benefit made by te vender/moneylender is not viewed as entusiasm on an advance,
(or any sort of remuneration for te utilization of te loan specialist's capital), as tis would be
illegal as riba. Rater it is seen as "a benefit on te offer of goods".Murabaa is like a rent-topossess course of action, wit te middle person olding responsibility for property until te
advance is ponied up all required funds.For tis assignment,I coosed two banks wic are
Commerce International Mercant Bankers (CIMB) and Bank Muamalat Malaysia Berad tat
practiced te murabaa system in teir banks.
For introduction,CIMB Group is a universal bank eadquartered in Kuala Lumpur,
operating in ig growt economies in ASEAN. CIMB Group is an indigenous ASEAN
investment bank, te largest Asia Pacific (ex-Japan) based investment bank and one of te
world's largest Islamic banks. CIMB as a wide retail branc network wit 1,080 brances across
te region.Te group operates under several entities, wic include CIMB Investment Bank,
CIMB Bank, CIMB Islamic, CIMB Niaga, CIMB Securities International and CIMB Tai. Te
group's business activities are primarily in te areas of Consumer Banking, Wolesale Banking,
comprising Investment Banking and Corporate Banking, Treasury & Markets, and Group
Strategy & Strategic Investments, wit its core markets being Malaysia, Indonesia, Singapore
and Tailand. CIMB Islamic operates in parallel wit tese businesses, in line wit te group's
dual banking model.Te group as over 40,000 employees located in 18 countries, covering
ASEAN and major global financial centres, as well as countries in wic its customers ave
significant business and investment dealings.Rater tan explaining all te products available,I
will focus only in murabaa system for tis assignment purposes.
Next, Bank Muamalat Malaysia Berad provides Islamic banking and related financial
services in Malaysia. It operates troug tree segments: Business Banking, Consumer Banking,
and Treasury and Investment Banking.It was started its operations on October 1, 1999 wit a
combined assets and liabilities brougt over from te Islamic banking windows of te ten Bank
Bumiputra Malaysia Berad, Bank of Commerce (M) Berad and BBMB Kewangan. Bank
Muamalat Malaysia Berad, te second full-fledge Islamic bank to be establised in Malaysia
after Bank Islam Malaysia Berad, is poised to play its role in providing Islamic banking
products and services to Malaysians, irrespective of race or religious beliefs, tus contributing to
te development of modern Malaysia.We will see te ow te murabaa system works for bot
banks in next section.

CIMB : commodity murabahah

Some Islamic researcers tink product murabaa ougt to be kept away from owever
muc as could reasonably be expected, saying it intently looks like an entusiasm bearing
excange. Is tere a superior option financing structure? Te idea of ting murabaa (or
tawarruq in a few locales) as just as of late been generally connected in Islamic fund, alongside
oter syaria contracts, for example, mudaraba, musaraka and bai murabaa. Te utilization
of tis excange related structure wit a pre-decided benefit rate (or pre-concurred "edge" or
"stamp up") is conceivable in syaria-agreeable financing and store items and also in liquidity
administration/treasury instruments and oter speculation items/securities. On te oter and,
resistance still exists on te ground from a few commentators wo say tat ware murabaabased money related items look to some extent like premium based items.
It is not generally ruddy for Islamic money related items wic regularly get to be
subjects of contrasting perspectives from Islamic researcers on teir Saria consistence. Te
most current item receiving te idea of ware murabaa is of no special case. At first presented
as a currency business sector instrument, it as extended to oter range of money related items.
Te excange components attaced to te item structure wit pre-decided benefit rate finising
te spine, ting murabaa is by and large acknowledged, but wit alert. Indeed, even wit one
proclamation banning it asserting its similitude wit entusiasm bearing components and te
oter to condition it upon te quantities of contracting gaterings, tis resembles te best wager
we ave so far as applied srewd, it is all around acknowledged. Along tese lines, until we
locate a superior option, tis item arrives to sit tigt.
In fact, te streams for item Murabaa are as per te following; firstly, upon te entry of
te property, te bank arranged te Letter of Offer for aead transmission wit te client. At tat
point, te client migt sign all togeter for te procedure to keep proceeded. Besides, upon te
fulfillment of te documentation, bank approaces Trader 1 to buy te ware base on Bank's
Purcase Price (BPP) wic is proportional to te affirmed financing sum. Yet, must to be
noticed tat acknowledgment of Letter of Offer won't trigger te deal or purcase of te ting.
Tirdly, ensuing to te buy of item, te bank migt offer it to te client troug Murabaa
assention taking into account Bank's Selling Price (BSP) on conceded installment premise.
Installment may be made on portion as set out in te understanding. Fourt, once te possession
as been excanged to te client, te bank to contact te client by option cannels like SMS to
perform te acknowledgment of te deal inside of te stipulated time allotment. Fift, after te
possession excanged to te client, te client may offer te item to Trader 2. For tis reason,
client may coose te bank or any outsider tat is adequate to te bank to be an operators to offer
te mercandise for te client. Te bank ten offers te product to Trader 2 to get money for
payment to te client. Mercant 2 trade te mercandise wit money. 6t, after te money as
been gotten, te bank migt dispense te asset to client wit te end goal of getting particular
property. Te property will be secured as guarantee against te financing given. In conclusion,
client settles sum because of bank (Principal in addition to benefit) by metod for concurred
portion system.
Basically, te Letter of Offer and te agreement contract involve above is being
categorized into different types. We ave Notice of Aqad troug SMS, CIMB-I - CMP Carge
Annexure (1st party and 3rd party), CIMB-I - CMP Deed of Assignment (1st party and 3rd

party), CIMB-i - CMP Guarantee Indemnity, CIMB-i - CMP Murabaa Facility Agreement,
CIMB-i - CMP Power of Attorney (1st party and 3rd party), Commodity Murabaa Property
Financing-i Compack and Statutory Declaration - D024.
Firstly, Notice of Aqad troug SMS is notification to be issued to Customer on advising
Customer on te utilization of 'considering acknowledgment condition' former excange date.
Client will be educated about te ting tey requested by te bank troug Sort Messaging
Service (SMS) and client just be given 1 our to react. On te off cance tat te client neglects
to do as suc, te agreement is considered as acknowledged and will be continue as common to
finis te agreement.
Ten again, CIMB-i - CMP Carge Annexure includes te first party (client) and tird
gatering (Guarantor). It is a term of te Letter of Offer and te Murabaa Facility Agreement
tat te installment of te Secured Amounts is to be secured by tis Carge and tis Carge
migt be executed by te Cargor for te Bank as per te terms and subject to te conditions
contained. In tis manner, all representations, guarantees and contracts made in tat by te
Customer and/or te Cargor sould be considered to ave been made by te Cargor and
references to te Customer and/or te Cargor in te Murabaa Facility Agreement migt be
perused as toug tey were references to te Customer and/or te Cargor.
Furtermore, CIMB-i - CMP Deed of Assignment likewise includes first gatering and
tird gatering likely te same as CIMB-i - CMP Carge Annexure. It is a term of te Letter of
Offer and te Murabaa Facility Agreement tat te installment of all monies due and payable
by te Assignor to te Bank in accordance wit te Transaction Documents are to be secured by
amongst oters, tis Deed of Assignment to be executed by te Assignor for te Bank upon te
terms and subject to te conditions contained. Likewise, it is concurred by all tat every single
furter perspective including benefit commitment and so on sould be caused by te Assignor as
well as te Customer to te Bank, weter present or future.
Moreover, CIMB-i - CMP Guarantee Indemnity is insurance and repayment by people made
to te bank. To be clear, bank normally regard for surety from te client as tey embrace any
agreements. In tis manner, te underwriter togeter and severally, genuinely and unalterably
consent to attempt and ensure te banks as a proceeding wit commitments like installment on
interest and underwriter agreement.
Basically clarify, CIMB-i - CMP Murabaa Facility Agreement is only an assention
contract on te most proficient metod to encourage te Murabaa contract in view of settled or
variable assistance, altered just or variable just. Close to, CIMB-i - CMP Power of Attorney is a
consent to select te bank as te lawyer tat as powers to manage te property or te bank can
name anoter person powers on te force of lawyer. Te fundamental reason for tis is to upold
all pledges in te Sale and Purcase Agreement.

Bank Muamalat Malaysia Berhad Murabahah

Muamalat Berad ave 3 sorts wic are Murabaa Working Capital Financing-I,
Accepted Bills-i and Outward Letter of Credit-i. In tis way to say, Muamalat Berad is
including in essential financing as well as in excange fund.
Firstly, Murabaa Working Capital Financing-I (MWCF) is an excange money item use
in Muamalat Berad. It components incorporate tat te expense must be uncovered to te client,
te essential conditions for Murabaa in Islamic Bank. Likewise, te value and residency of te
singular amount conceded installment must be settled upon by te Bank and te client, te Bank
selects client as an operators (Al-Wakala) to buy on its sake. Moreover, te negligible store may
be forced on client and in tis way excange excanges for sigt (D/P) just are permitted and
financing for ting of saleable quality like buy of stock and inventories, extras and substitutions,
semi-completed products and crude materials. Tis item as advantage to te client in term of
paying so as to own te property in conceded installment furtermore progress made by te Bank
for te benefit of purcaser to pay te mercant.
Secondly, Accepted Bills-I (AB-I) likewise one of te item under excange account.
Stomac muscle I likewise is a speculation instrument in view of Murabaa contract. Tere are
two sorts of offices accessible to exporters under Export Credit Refinancing (ECR i) Sceme
wic are Purcase from Resident/Non-Resident and Sale to Resident/Non-Resident. For te
first sort, te Purcase from Resident/Non-Resident is an office allowed to purcasers to fund
teir buy of excanging products wic incorporate crude materials, semi-completed and
completed mercandise. Te Bank will go into Murabaa contract wit te client and later te
bill is excanged te optional business sector under Bai-Al Dayn contract. Under tis sort, te
Usance Bill of Excange drawn by te Bank on and acknowledged by te client. Likewise, 100%
financing of receipt quality is ensured in addition to te base sum for financing is RM50000 wit
financing tenor 365 days less te period between te date of te soonest supporting arcive and
te date of drawing te AB-I appear to advantage te client most. Excange recorded over 180
days before te drawing date ougt to be declined. Wat's more, te employments of tis item to
fund neigborood buys or import wit batcing of reports in numerous RM1000 to acieve te
base measure of RM50000 is took into consideration financing. Utilizing tis sort, te client may
get aggressive rate of benefit in ligt of te overarcing currency business sector rate cited by te
Bank day by day. In te interim, it is prepared wellspring of asset and tradable in te optional
business sector to furnis liquidity wit repaired stamped rate all troug te tenor.
For te last product, Outward Letter of Credit-I is opened for te benefit of a client wo
wises to import or purcase mercandise. Essentially, Letter of Credit-I/DC is like te ordinary
letter of credit. It is composed undertaking given by te Bank at te solicitation of te purcaser
to pay a dealer (te recipient) suc tat te Bank wic issues te credit will pay te vender
(recipient) a sure entirety of cas, as stipulated in te letter of credit gave te mercant goes
along te terms and states of te Letter of Credit. Under tis item, te client acquires advantages
in term of buying products on layaway and appreciate te money cost from te supplier wile
getting financing from te Bank and pays te bank on conceded term wit discount may be given
on aead of scedule settlement.

Comparative Analysis between CIMB and Bank Muamalat Malaysia Berhad

After te excange on te use of Murabaa in bot banks above, we can see tat tere are
a few likenesses and contrasts in its application. To say, te similitudes is clearly utilizing te
Murabaa essential idea as lay out by te Sari'a wic are revealing te benefit and cost and
understanding between gaterings.
By one means or anoter, te contrasts between tese two banks are ambiguously seen in
ligt of te fact tat bot banks are utilizing te idea of Murabaa and attempt to be in
accordance wit Sari'a. We can see from te idea of Murabaa items under every bank. For
CIMB, tey generally utilize tawarruq idea. Wit respect to Bank Muamalat Malaysia Berad,
te idea tey utilize are varies starting wit one item ten onto te next like Murabaa Working
Capital Financing-I (MWCF) utilizes te idea of residential and remote excange back and
import and fare excange fund wile Accepted Bills-I (AB-I) utilizes te idea of Murabaa and
Bay' al-Dayn (Sale of Debt).
Additionally, we can see from te components tat sould be filled on like contract letter is
contrast from eac oter. As bot banks arranged te agreement of acknowledgment, tey may
utilize a wide range of sort of regulations and approac. CIMB's agreement of Murabaa must
be begun wit Letter of Offer ten gone before by contract of acknowledgment and assention
like CIMB-i - CMP Carge Annexure structure and numerous oter tat as been listen above.
Dissimilar to CIMB, Bank Muamalat Malaysia Berad utilizes more oversimplified instead of
advanced one to approac te client contractually. Te client is being clarify about everyting
tat tey ave to know in view of te item tey need to be in. Everyting is simple and basic for
te client understanding.
In any case, te improvement of te bank is unique in relation to one to anoter. CIMB may
as been sorter in Islamic financing framework wile Muamalat Berad as begun around 16
years back. Accordingly, individuals are more tougt about Muamalat Berad tan CIMB.
Indeed, even I simply know te presence of Islamic managing an account arrangement of CIMB
3 years prior. Te distinctive time of improvement as lead te banks into wat tey are todays.
Consequently, Muamalat Berad is apparently increments in quantities of client tese days, as
reported in teir site, tat maybe tey migt as of now surpassed te level of CIMB's
accomplisment.

Critical Analysis on the application

Murabaa is considered to be one of te most preferable modes of Islamic Finance bot

by earlier and contemporary jurists and Islamic scolars. Ibn Taymiyya observed: "One wo
deliberates on te basic principles would easily conclude tat Musaqat, Muzaraa and
Mudaraba are nearer to justice tan ire." (Fatawa, Vol.20. p.356).Maulana Taqi Usmani (2004)
in is book Introduction to Islamic Finance stated at least 5 times tat Mudaraba and
Musaraka are ideal mode of financing respectively on page 12, 17, 72, 107 and 164. His
comments on Murabaa wic is te most prevalent mode of financing also deserve serious
tinking:
It sould never be overlooked tat, originally, Murabaa is not a mode of financing. It is only a
device to escape from interest and not an ideal instrument for carrying out te real economic
objectives of Islam. Terefore, tis instrument sould be used as a transitory step taken in te
process of te Islamization of te economy, and its use sould be restricted only to tose cases
were Mudaraba or Musaraka are not practicable. (p. 72)
One of te real obstacles in te utilization of Mudaraba on te benefit side of a bank i.e.
for financing is tat just Rabb-ul-Maal is considered to old up under all te money related
misfortunes (Saik, 2010). In tis manner, if an Islamic bank goes into te Mudaraba contract
as a Rabb-ul-Maal, just te Islamic bank would need to old up under every one of te
misfortunes. Mudarib (Fund supervisor) bears no misfortune wile e as te complete power in
maintaining te undertakings of te business. Te Rabb-ul-maal (financial specialist) is not
permitted to partake in te undertakings of te business (it is dissimilar to te case in VC stores
were te Venture Capitalist could incorporate a few contracts for managing organization issue
and even select BoD and BoM and cange tem in like manner). At te point wen a misfortune
appens, te Mudarib demonstrations like a worker of te business and wen te benefit
appens, e partakes in te benefit as toug e was te main purpose for te benefits.

Reference

1. CIMB official website ttp://www.cimbbank.com.my/en/personal/solicitor.tml

2. Bank Muamalat Malaysia Berad ttp://muamalat.com.my/
3. A Critical Analysis of Mudaraba & A New Approac to Equity Financing in Islamic Finance
Journal of Islamic Banking & Finance, ISSN 1814-8042 By Salman Amed Saik
4. Google translates, one of Google products
5. Islamic House Financing: A Critical Analysis and Comparison wit Conventional Mortgage
Dr. Muammad Hanif - Baria University - Accounting-Finance Department