Murabahah in Islamic Commercial Law Application within Islamic Banking Essay

Murabahah in Islamic Commercial Law Application within Islamic Banking and Finance Industry - Essay Example Now there are more than two hundred Islamic financial establishments all over the world. Actually, Murabahah is a term associated with Islamic Fiqh, which indicates to a particular type of sale, and it has nothing to do with financing. Islamic scholars still argue that, the structuring of  Murabahah  financing is rather different from the overdraft facility prepared along conventional lines as the former one offers numerous benefits to the bank and its customers. In fact, murabahah as a means of finance was permitted by the Sharia scholars with certain conditions. Unless these conditions are fully observed, murabahah is not allowable. According to Sharia, if the conditions are ignored, the transaction becomes void or worthless. â€Å"Murabaha is a sale contract for selling a specified item at a mutually agreed mark-up (profit) added to the purchase price† (Trade Based Financing Murabaha Cost-Plus Sale) n.d.). Issues in  Murabahah 1. Securities against  the Murabahah Pa yments received from sale are called receivables, and for this purpose, the clients are asked to provide a security. 2. Guaranteeing Murabahah The seller can request the client to provide a  third  party guarantee. The guarantee doesn’t have the option to charge fee from the client. The reason is that, a person who is charged with a fee for advancing loan may fall under the definition of riba. . 3.  Penalty of Non-Payment: In case a client fails to make payment of the fee on the due date, the fee should not be increased. â€Å"In Murabahah financing, once the price is fixed, it cannot be increased† (Important Issues Involved in Murabahah n.d.). 4.  Ã¢â‚¬Å"Rollover in  the Murabahah† (Roll Over in Murabahah 2011): Once a commodity is sold through Murabahah, its possession transfers from the bank to the client, and therefore the seller may not have any right on the property. The seller can claim only the price agreed. 5.  Rebate on Former Payments: Occa sionally some debtors often like to pay before time to obtain discounts. However within Islam, a large section of Muslim scholars as well as the major schools of thought regard this as un ­Islamic. On the other hand, if the Islamic bank or the financial institution gives somebody a discount on its own, it is not offensive, particularly if the clients are needy. The Significant Issue in Murabahah Financing. The subject of debate among the modern Shariah scholars is that the bank or financier can go for a real sale while the client requests Murabahah financing from the bank, because the obligatory commodity, at this stage is not possessed by the bank, and the person cannot sell goods not possessed by him nor can he facilitate a forward sale. It is also decided that the commodity which is sold is given as a security to the seller. Some scholars have the opinion that this can be done only after the buyer has undertaken its delivery and not prior to that. Critically Discuss and Analyze the Discourse from the Different Legislations and Jurisdictions by Presenting the Islamic Finance Cases that Have Come Before the Courts. Islamic banking denotes a system of banking activity or banking that is reliable with the principles and rules of Islamic law (Sharia), and its practical application in the course of the growth of Islamic economics. â€Å"Sharia forbids† the payment of fees for lending cash (Riba, usury) on specific conditions, in addition to investing in businesses that offer goods or services measured contrary to its principles (Haraam, forbidden). At the same time, as these principles were employed as the support base for a flourishing financial system in earlier times, it is merely in the late 20th century that numerous Islamic banks were created to apply these principles to semi-private