Commercial Risks in Financing through Murabahah in Islamic Banks

Mahmoud Abdul Karim Ahmad Irshaid - Department of Islamic Banks - An-Najah National University – Palestine. Email- [email protected]

Abstract:

This research aims to explain business risks faced by Islamic banks before engaging in legitimate Murabaha loan financing. It specifically focuses on the commercial risks associated with legitimate commercial Murabaha financing. In this financing model, banks earn a profit in return for the cost of financing, which includes the cost of deferred payment and the value added to the goods. The study also explores various forms of Murabaha financing that are free from commercial risks. These forms are designed to acquire the permitted goods in the contract, resulting in a net profit that is free from commercial risks over a specified period. The researcher employed an A mixture of analytical and inductive approaches to assess the impact of commercial risks on the legitimacy of Murabaha financing, differentiating it from symbolic Murabaha financing, and examining its effect on the bank's profitability. Additionally, a descriptive approach was used to explain the forms of Murabaha financing, with a focus on Islamic banks and Ijarah Muntahia Bittamleek (IMB), also known as lease-to-own. The study concluded that when an Islamic bank engages in legitimate Murabahah financing, it assumes the role of a trader and is obligated to bear commercial risks. Any profit earned under these circumstances is deemed permissible. However, when operational procedures are disrupted, the bank's role shifts from bearing these risks to acting as a financier or intermediary. In such scenarios, the financial return resembles that of illegitimate Murabahah financing, with both being fundamentally influenced by the factor of time. The study also identified a criterion based on Zarka's rule to differentiate between genuine risk-bearing Murabahah financing and risk-free symbolic Murabahah. This criterion states: 'Profiting from Murabahah financing is permissible only when it involves exchange contracts in which one of the parties possesses actual wealth, and both parties have a mutual interest in the contract, without any delay.' Furthermore, the study established that the legitimacy of profit in legitimate commercial Murabahah financing does not extend to fictional Murabahah financing; it is contingent upon the bank's actual assumption of real commercial risks.

Keywords: Genuine Murabahah Contracts, Fictional Murabahah Contracts, Islamic Banking, Commercial Risks, Ijarah Muntahiyah bi al-Tamlik (IMB).

Title

مجلة جامعة الشارقة للعلوم الشرعية والدراسات الإسلامية

Publisher

جامعة الشارقة- الشارقة

Publisher Country

United Arab Emirates

Publication Type

Prtinted only

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