Financial Risk Manager: Process of availing Murabaha Finance

Process of availing Murabaha Finance
Thursday, April 2, 2009

Query from maria qurashi:

What is the process of obtaining Murabaha Finance from Islamic Bank?

Comment:

Following process flow has been developed for purchase of raw materials including Cotton, Yarn, Polyester Fiber, and Viscose:

After necessary Credit and Shariah approvals, Bank and Client will enter into Master Murabaha Fianance Agreement and Agency Agreement listing the assets to be procured.

The Relationship Manager and/or Bank Officer will educate the customer about the Murabaha process and especially about the importance of placing Order form before / along with placing order to supplier, signing of the declaration before consumption and storing the purchased stock of goods separately from the stock already present in the warehouse for proper identification.

As an agent, the customer will negotiate the price of the products and finalize details with the seller and subsequently send an Order Form to Bank before / along with placing Order to supplier.

In case of Spot Purchases, as per order form funds will be disbursed into Client account at Bank for onward Direct Payment to suppliers through Bank Cross Cheques / DD / PO or make Indirect Payment through other banks Cheque/DD/PO/Online Slip within 05 working days of disbursement. Customer will provide copy of payment instrument used as payment evidence to Bank.

In case of Credit Purchases, Client as Agent of Bank will place the purchase order to its Suppliers and will inform Baank through written request elaborating the terms of Credit i.e. expected time period of Cash Outflows (Maximum Credit period of 40 days) along with amount.

As per above Credit terms, on or before 40th day, Bank upon request of Client will make disbursement in their account for onward payment to the Supplier through Bank or other bank(s) as mentioned above.

Upon arrival of goods customer will provide purchase evidence in the shape of Truck Receipts / Inventory Report / Stock Report / Gate Passes to Bank and give and offer to Bank to purchase the goods via declaration immediately (but not later than 10 working days after receipt of Cotton & Yarn and not later than 3 days for other goods). It must be ensured by the customer that the goods are not consumed before the declaration Moreover, customer confirmation regarding purchase price and weight on above referred Purchase Evidences carrying sign & stamp will be sufficient to calculate the declaration amount. Customer will provide Purchase Invoices for at-least 20% of disbursed amount for each sub-Murabaha transaction.

To ensure that goods etc. are not consumed before signing of declaration, the related Relationship Officer / Relationship Manager will also perform random physical inspections of purchased stock in 10% of the Sub-Murabaha transactions. Telephonic confirmation shall be taken in all the remaining cases.

Upon confirmation Bank will accept the offer by signing the Declaration and the ownership of assets will transfer. At this stage the tenor of sub-Murabaha, contact price and payment schedule will be finalized through Summary Payment Schedule.

Upon maturity date the Sub Murabaha will be settled by Client from its own sources.

For credit purchases profit rate at the day of Declaration will be used to calculate the Contact Price.

posted @ 2:13 PM,