Commodity Murabaha is a transaction in which a bank buys a traded commodity, usually a base metal, for spot payment and resells it to a counterparty at a mark-up payable later, so as to place or raise liquidity without an interest-bearing loan.
A treasury placement between Islamic banks
Islamic banks can neither lend nor borrow overnight at interest on the money market. To place a surplus or cover a shortfall for a few days or months, they use deferred-payment sales of metal between themselves, documented under a master agreement.
Placing ten million for one week: a worked example
Bank A has a surplus of 10 million. It buys 10 million worth of copper from a broker, then resells it to Bank B for 10,008,000 payable in seven days. Bank B immediately sells the copper for cash and so obtains its liquidity.
Orders, confirmations and warrant numbers
Each step leaves a time-stamped record: purchase order, confirmation of ownership listing the lots and their warehouse, sale offer, acceptance, then any agency for resale. Standardised master agreements, such as those published by IIFM, govern this sequence and each party's responsibilities.
Copper, aluminium, nickel: why base metals?
These metals are standardised, stored in approved warehouses and identifiable by lot, which allows ownership to pass quickly. Gold and silver are excluded, because exchanging them for money requires immediate delivery on both sides, which is incompatible with deferred payment.
Bursa Suq Al-Sila, Malaysia's electronic platform
Set up by Bursa Malaysia in the late 2000s, this platform arranges commodity sales, mainly of crude palm oil, for Murabaha and Tawarruq transactions. It connects suppliers, banks and brokers and confirms every transfer of ownership electronically.
Multiple currencies and trades settled in minutes
Participants can deal in ringgit as well as foreign currencies, and the purchase, deferred sale and resale sequence is often completed within minutes. Institutions outside Malaysia access it through brokers, making it an alternative to the London route.
London brokers and LME warrants
Historically, most volume went through London-based brokers holding metal stocks backed by London Metal Exchange warrants. The same lot can be sold several times in one day to different banks, a point some Sharia auditors scrutinise closely.
Owning metal you never see
The buying bank does not take physical delivery: it receives a certificate allocating specific lots to its name. AAOIFI standards accept this constructive possession if the risk of loss genuinely passes to the bank and the lots are identified unambiguously.
Fixed-return term deposits rely on the same structure
To offer a customer a deposit with a return known in advance, the bank reverses the roles: the customer, acting through the bank as agent, buys metal for cash and then resells it to that same bank at a mark-up payable when the deposit matures.
Central banks and liquidity ratios
Lacking enough compliant securities, several monetary authorities have used commodity Murabaha operations to absorb or supply liquidity to Islamic banks. Because these receivables are hard to trade, they count poorly towards the buffers required by the Basel III liquidity rules.
Organised Tawarruq: why jurists remain divided
For the party reselling the metal, the operation amounts to organised Tawarruq, which the OIC International Islamic Fiqh Academy disapproved of in 2009. The AAOIFI standard allows it under conditions while advising against making it the main tool; others prefer Wakala or sukuk.
What a Sharia audit checks in these placements
The auditor checks that the purchase really precedes the resale, that the selling broker is not the final buyer, that the lots do not return to the original seller and that no unpaid maturity is rolled over with an extra mark-up added to the debt.
Specialist external source
The AAOIFI Shariah Standards, particularly those on Murabaha and Tawarruq, set out the conditions on possession, sequencing of contracts and resale that apply to these placements.