Question

Q VI) You are interested in executing a Murabaha contract to meet your business Murabaha contract has following details. The purchase price for the bank is AED 100 million. The bank accepted your offer of of 8% per annum on the purchase price. The tenor of the contract is one year What will be the value of the Murabaha contract if payment is in 4 installments?

Answer 1

The term Murabaha contract is related to the Islamic banking. It is a contract between client and the bank. The bank will buy the commodity on behalf of client and discloses him the cost price and profit margin. It is on cost-plus-profit basis, as the seller (bank) discloses the cost price and adds profit to it in deriving the selling price.

So, Cost price (CP) for the bank = AED 100 million

Selling Price (SP) to make profit the bank accepted with you is 8%,

Henceforth, SP = AED 100 million *(1.08) = AED 108 million

or

8% on AED 100 million is 8 million, final selling price is AED 100 million plus AED 8 million i.e AED 108 million.

The value of Murabha contract is AED 108 million which is payed by client in 4 installments