Financing cotton, steel or fertiliser through a resale at a known margin

Raw-material Murabaha is a financing in which the bank buys a physical commodity that a business needs for production or trading, takes possession of it, and then resells it to that business with a disclosed margin payable on an agreed date.

Inputs the customer uses up or processes

A spinning mill buying raw cotton, a steelmaker importing scrap or a cooperative ordering fertiliser uses Murabaha to pay the supplier on delivery and settle with the bank later, often once the finished products have been sold to its own customers.

What sets this structure apart from tawarruq

Here the business keeps the goods and puts them to work. In tawarruq the customer immediately sells the metal to a third party to obtain cash. The first finances a physical need, the second a cash need, and jurists assess them differently.

Why gold, silver and currencies are excluded

AAOIFI standards prohibit selling gold, silver or currencies through deferred-payment Murabaha, because exchanging them for money requires immediate settlement. These precious metals therefore go through other contracts, with delivery and payment made on the spot.

Wheat, dates, salt: the ribawi foodstuffs

Certain staple foods follow the riba rules when exchanged for one another. Sold for money, however, they can be the subject of a deferred Murabaha, which makes it possible to finance grain traders and food importers without breaching those rules.

Describing the goods with precision

Quality, grade, origin, quantity, weight tolerance and delivery point all belong in the contract. A vague description creates gharar about what is being sold; an analysis certificate or a recognised exchange specification reduces that uncertainty considerably.

Warehouse receipts and possession by title

The bank does not store the tonnes it buys itself. A warehouse receipt identifying the lots, or a delivery order in its name, can amount to sufficient legal possession, provided the goods genuinely exist and are separately identified.

Incoterms and the moment risk passes

For an imported cargo, the FOB or CIF term sets the point at which title and risk move from the supplier to the bank. The bank must carry that risk until the resale; a resale signed before the transfer would be invalid.

Inspection and defects found on delivery

The bank may hire an inspection company or leave the checks to the customer. If the goods do not conform, the seller remains liable: the bank usually passes the supplier's warranties to the customer, but cannot entirely exclude its own liability for hidden defects.

Price swings while the bank holds the stock

Between purchase and resale the bank bears movements in the price of the quoted commodity. If the customer walks away, it must dispose of stock that may have lost value; the purchase promise covers only actual loss, not a forgone margin.

Setting the price on an exchange-traded market

The resale price may be based on the quotation on the day of purchase, but it must be final at signing. A formula pointing to an unknown future price, such as next month's average, would leave the price undetermined.

Revolving lines for seasonal purchasing

Sugar refiners and cocoa traders use a capped master agreement: each cargo triggers a separate purchase and resale, with its own margin and due date. The master agreement on its own creates no debt until an actual sale has been concluded.

Checks to carry out before signing

Confirm that the supplier is independent of the customer, that the invoice is made out to the bank, that the goods are insured while held, and that the Sharia board has approved the flow. A resale to the original seller would amount to Bay al-Inah.