Use of fake Murabaha by Islamic banks for
financing and earning disguised interest
Normal sale is based on price known in advance. If price is unknown, sale is, of necessity, based on profit payable together with the expenses to be incurred by the seller in procurement. Upon taking delivery, the buyer pays in cash. Sharia permits such cash sale naming it Bai Murabaha as it is based on profit. Logically genuine Murabaha sale is negotiated only when the price is not known. If in a credit sale transaction the buyer is charged more than the price at which he can buy what he needs against cash payment, then such a sale is fake Murabaha and mark-up on the price is interest.
Bai Murabaha is basically cash sale involving no credit and no finance provider. But Islamic banks use fake Murabaha to provide finance and receive disguised interest in the name of profit in Murabaha sale. What happens is briefly as follows. The buyer knows the seller and price of the item he needs but lacks ready cash to pay. It is no case for a genuine Murabaha. Islamic bank, under a fake Murabaha agreement with the buyer, provides finance by paying the price to the seller. In agreed time after delivery, the bank receives from the buyer the finance provided by it plus an agreed amount nearly the same as interest on the finance provided by Islamic bank calculated at conventional inter-bank interest rate. Islamic banks profess the additional amount is profit in Murabaha sale. But common sense tells the additional amount is price of time the buyer takes in paying and that is plain interest.
Enclosed herewith is a five page document including extracts from authentic writings on the subject discussed above. Islamic bankers and their sharia advisors must give thoughtful consideration to this discourse and realize that playing tricks with letters of sharia law will damage the cause of eliminating interest and bring disgrace to Islamic banking and to themselves also. Shaikh Saleh Abdullah Kamel, a pioneer in Islamic Banking and founder of Al-Baraka Islamic Bank has recently said on BBC-TV channel that 90% of what presently Islamic Banks are doing is wrong. For professing what is plain interest to be profit they are liable to answer the Quraanic question: Why do you say what you do not?
Abdul Wadood Khan
Encl : 5 Page document captioned :- Extracts from authentic writings on Islamic Banks’ use of fake Murabaha and Bai Muajjal and earning disguised interest.
27th Feb. 2008.