CRITICAL STUDY OF COMMODITY MURĀBAḤAH PRACTICE OF ISLAMIC BANKS FROM SHARĪAH PERSPECTIVE

Abstract

Commodity Murābahah prevalent in Islamic banks resembles Tawarruq contract and Murābahah lil Amir bi al-shira. Classical fiqh used to be a trust sale in which known profit was charged above the cost price. Islamic banks use Commodity Murābahah as a tool for managing interbank liquidity between the banks. There are mainly two methods to conclude it, i.e., finance giving and finance taking. For the sake of concluding this financing, metals are used as underlying commodities. It is reported that these metals never change hands or possessions. The same metals are sold as underlying commodities numerous times. The deposit based on these metals gives fixed returns to the Financial Institutions. Islamic Banks conclude these transactions with Conventional Banks most of the time. In 2020, the Islamic Development Bank and Dubai Islamic Bank decided to invest USD 500 million each in commodity Murābahah financing. The volume of such contracts has increased by more than USD 70 billion; till 2019, the total volume reached up to USD 2.88 trillion. There are reports of its increase of 12 % per annum. Commodity Murābahah, a last variant of Murābahah to the Purchase Orderer, is doubted by many and needs thorough analysis from the perspective of Shari'ah rulings. This research aims to analyze in detail the questions on the validity of Commodity Murābahah . It employs a qualitative research method and analyses the commodity Murābahah from the perspective of Islamic jurisprudence principles. The findings of the article show some serious issues with this product.

Keywords

• Murabaha, Commodity-Murabaha, Tawarruq, Islamic Banks