Murabahah (Cost Plus profit) mode of financing

Murabahah is a contract of sale between a customer and a bank in which a bank purchases the goods needed by a customer and sells the goods to the customer on a cost-plus basis. Both the profit (make-up) and the time of payment (usually in installment) are specified in an initial contract. The bank is the owner of the goods before it sells it to the customer. The bank may require collateral from the customers to secure the finance.

Among the services included in Murabahah are the following;

  • Murabahah Term Financing- For purchase of inputs, machinery or short-term project financing;
  • Murabahah Revolving Financing Facility-for purchase of inputs;
  • Murabahah LC Financing-For purchase of inputs and machinery from abroad.
  • Murabahah pre-shipment and Murabahah post-shipment Financing-For the purchase of goods to be exported.

Specific Requirements for Exporters

  • Export plan by type and quantity
  • Export sales contract (Bona-fide order from foreign buyer)
  • Past export performance Condition of warehouse and processing plant

Specific Requirements for Importers

  • Past import performance
  • Pro-forma invoices
  • Approved purchase order (if any)
  • Letter of credit opened
  • Marketability of the goods to be imported

Specific Requirements for Manufacturer

  • Full description of installed machine including country of origin, year of manufacture, status and etc
  • Production capacity
  • Availability of spare parts
  • Availability of raw material
  • Raw materials consumption (Local and foreign)
  • Marketability of the goods to be manufactured and sale outlet