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Halal Chocolate Factory Financing: Murabaha Explained

Explore the legal and Sharia basis of Murabaha finance in establishing a chocolate factory. Learn the advantages, disadvantages, procedures, risks, and required forms and documents in Al-Baraka Bank's financing process.

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Halal Chocolate Factory Financing: Murabaha Explained

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  1. Yumyme Chocolates Names: Hussain Ali Mustafa Hassan Abdulla Alturabi Financed by

  2. Table of content: • Definitions and legal/Shari’abasis of Murabaha • Advantages and disadvantages of the Murabaha compared to other modes of finance • The required forms and documents used in Al-Baraka • The procedures for providing the moneyin Al-Baraka • The risks involved in Murabaha contract and how can they be mitigated

  3. Definition • Murabaha • Steps: • Discuss establishing chocolate factory • Buy back + profit margin • Ordinary murabaha • Murabaha sales connected with a promise • First sale contract takes place • Customer is agent • Contractor begins construction • Client will buy back

  4. Legal/ShariaBasis • Contracts based on Quran and Sunna • Examples of fatwas: • Meaning and purpose (i.e. simply replace “interset” with “profit”) • Promise (Malkivs others) • Insurance • Commission via administrative costs • Property as guarantee • Bank can use a mode of finance with other banks • Customer bears costs if purchase promise not executed

  5. Advantages of Murabaha

  6. Disadvantages of Murabaha

  7. The procedures for providing the money • Step 1: filling the application form and attaching the required documents • Step 2: analyzing the client application • Step 3: signing the facilities agreement and the offer letter • Step 4: sign an Agency contract (Wakala) – client trustworthy

  8. The procedures for providing the money • Step 5: Murabaha financing process: • A- One off • B- Revolving • Step 6: local purchase order • Step 7: payment request letter with an invoice

  9. The procedures for providing the money

  10. The required forms and documents used in Bank AL-Baraka: • Application form • Required documents from the client • Credit Approval Routing Slip • Facilities agreement • Offer letter • Agency contract (Wakala) • Local purchase order • Invoice • Payment against invoice letter

  11. Risks • Credit Risk • Market Risk • Operational Risk

  12. Credit Risk • Defaults in payment • 1% Late Payment • Postponed Cheques

  13. Market Risk

  14. Operational Risk

  15. Thank you for listening

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