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Islamic Contract – Bay’ al-Murābahah: Promise by the Purchase Orderer
Q1: What is meant by the promise of the purchase orderer in murābahah?
Answer:
In Murābahah to the Purchase Orderer (MPO), the purchase orderer (customer) usually gives a promise (wa‘d) to purchase the asset after the seller or Islamic bank acquires it.
This promise is important because:
Q2: What is the AAOIFI position regarding the customer’s promise?
Answer:
According to AAOIFI Shariah Standard No. 8 (Para 2/3/3):
The approach depends on:
Q3: What is the BNM position regarding the customer’s promise?
Answer:
According to the Bank Negara Malaysia (BNM) Policy Document on Murābahah (Para 15.2):
Comparison Notes: AAOIFI vs BNM on Promise by the Purchase Orderer
AAOIFI Position
Case Study: Promise to Purchase Machinery
A company requests an Islamic bank to purchase machinery worth RM500,000 through a murābahah arrangement.
The company signs a promise to purchase the machinery after the bank acquires it.
The bank then:
Under AAOIFI
The difference reflects:
Q1: What is meant by the promise of the purchase orderer in murābahah?
Answer:
In Murābahah to the Purchase Orderer (MPO), the purchase orderer (customer) usually gives a promise (wa‘d) to purchase the asset after the seller or Islamic bank acquires it.
This promise is important because:
- the Islamic bank purchases the asset based on the customer’s request; and
- the promise helps reduce the bank’s ownership and market risks.
Q2: What is the AAOIFI position regarding the customer’s promise?
Answer:
According to AAOIFI Shariah Standard No. 8 (Para 2/3/3):
- the promise may either:
- be binding; or
- include an option to cancel.
The approach depends on:
- the agreement between the parties; and
- the structure adopted by the Islamic financial institution.
Q3: What is the BNM position regarding the customer’s promise?
Answer:
According to the Bank Negara Malaysia (BNM) Policy Document on Murābahah (Para 15.2):
- the promise becomes binding once the seller or Islamic bank takes action to acquire the asset.
- after the bank incurs costs or purchases the asset based on the customer’s undertaking,
- the customer can no longer freely withdraw from the promise without consequences.
Comparison Notes: AAOIFI vs BNM on Promise by the Purchase Orderer
AAOIFI Position
- Promise may be:
- binding; or
- non-binding with cancellation option.
- Greater contractual flexibility.
- Focuses on preserving voluntary consent.
- Promise becomes binding once the bank acts to acquire the asset.
- Protects the bank from ownership and commercial risks.
- Provides stronger operational certainty in Islamic banking practice.
Case Study: Promise to Purchase Machinery
A company requests an Islamic bank to purchase machinery worth RM500,000 through a murābahah arrangement.
The company signs a promise to purchase the machinery after the bank acquires it.
The bank then:
- purchases the machinery from the supplier; and
- incurs transportation and documentation costs.
Under AAOIFI
- If the promise was structured as non-binding with cancellation rights, cancellation may be possible depending on the agreement.
- If the promise was binding, the customer may be required to honour the undertaking.
- Once the bank acted to acquire the machinery, the promise became binding.
- The customer may be required to proceed with the purchase or compensate the bank for losses suffered.
The difference reflects:
- AAOIFI’s more flexible contractual approach; and
- BNM’s stronger protection of Islamic banks as financial intermediaries in murābahah financing operations.
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