This product will follow the Islamic concept “Murabaha”. Murabaha is defined as a purchase & sale transaction wherein the first party (financing party) purchases, on the basis of a prior undertaking from the customer (the purchasing party) called Promise to Purchase, the asset subject of the Murabaha in its own name. Then, it possesses it to resell it to the customer at its cost plus a profit margin agreed upon in the Promise.

The customer requests the bank to open, in the customer’s name and on its behalf, an irrevocable LC to receive all documents in the customer’s name in accordance with the terms set out for the LC. To allow financing of such goods, the sale contract should be executed only by the bank to enable the bank to take possession of the goods either physically or constructively. Shari’ah rule states that ‘it is not permissible to sell an object not owned by the Seller, the financer shall have to purchase the subject of Murabaha agreed between it and the customer in the financer’s name. Consequently, it should get the title and possession of the goods and only then sell it to the customer. However, under exceptional circumstances, the customer or a third party may purchase the goods, on behalf of the financier as its undisclosed agent by signing the “Master Agency Agreement”.

The Master Agency Agreement (Wakala) is the solution to allow the bank to execute the purchase/sale contract with the supplier and to be the owner of the goods directly. Such practice is acceptable and in line with Sharia guidelines.