Please comment on the sharia compliance of trade finance through Albarakah Bank

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Ref no: 0062#

Date: Monday, 11th April, 2011

Category

Money Matters

Title

Please comment on the sharia compliance of trade finance through Albarakah Bank

Question

Plz comment on the sharia compliance of trade finance through Albarakah Bank. I negotiate goods frm a supplier, who issues a proforma invoice in my and alabarakah’s name, the bank frwds paymnt to the supplier of goods and resells the goods to me at a profit and I repay the amt (price + profit) over an agreed period.

 

Answer

Muhtaram / Muhtaramah

In the Name of Allāh, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāh wa-barakātuh.

 

The concept explained in the query seems to refer to the Murabahah mode of financing employed by Islamic Banks throughout the world. Muslim Scholars specializing in the field of Islamic Finance have engineered this mode of financing as an alternative to the interest based financing offered by conventional banks and other financing institutes. This mode of financing is engineered in such a way that the aspect of interest is eliminated and the transaction is conducted according to the laws of Shari’ah. Hereunder is a basic example of Murabahaah mode of financing:

Zaid wishes to purchase a car worth R100,000, but does not have the financial means to do so. He approaches Bank A to assist him in purchasing the car. Bank A directly purchases the car from the dealer at R100,000 and sells it to Zaid for R120,000, on the basis of installments of R5,000 per month for 24 months. It is important that the Bank takes procession of the car before selling it to Zaid. The Bank’s transaction with the dealer should be separate and independent from its transaction with Zaid. It will not be permissible for the Bank to include both transactions in one, in such a way that one transaction is made a condition for the other. Hence, it will not be permissible for the Bank to force Zaid to purchase the car after it has purchased the car form the dealer.

Murabahah mode of financing does not constitute the aspect of interest and is in accordance to the laws of Shari’ah; as long as the abovementioned conditions and other conditions, mentioned by the Scholars of Islamic Jurisprudence, are adhered to.

We will not be able to comment on the trade financing done through Albarakah Bank unless we receive details on the procedure of the contract and the terms and conditions attached thereto.

And Allah knows best
Darul Iftaa

Madrasah Inaa’miyya

 

 

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