4. Murabaha Case Studies.pdf

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    Murabaha Case Studies

    Case for Local Advance Murabaha – Yarn Industry (Basic level)

    Aligs (Pvt.) Ltd., a company of the famous SANAULLA Group, was established in October

    1971 as a private limited concern. Over the period they have developed good expertise in

    fancy yarn spinning and are considered among the few giants in this category. The firm purchases raw material like polyester fiber, acrylic, viscose, synthetic fibre and other man

    made & natural fibers used in the manufacturing of fancy yarn from local market

    Aligs (Pvt) Ltd. purchases goods on advance basis from the supplier and the goods are

    delivered at the warehouse of the customer for further usage. The goods are normally

    delivered within 01-08 days after making payment with the supplier and minimum inventoryholding period of the client is 05 days.

    The customer has a requirement to purchase the manufacturing material through a bankarrangement and has approached Meezan Bank for financial support. Islamic financial

    mindset has urged him to approach Islamic Bank and a need to fulfill without disturbing theusual business procedures of the client.

    Required:

    Suggest a solution for the above mentioned situation and lay down the structure for the

    proposed solution.

    Case for Local Advance Murabaha – Cotton Industry (Basic level)

    Bilal Saleem Oil Industries is engaged in Cotton Ginning, Oil & Oil Cake Manufacturing(Oil Extraction) from Cotton Seeds, rap seed, canola, sunflower & other Oil Seeds &

    Trading business. They purchase Raw Cotton directly from Growers/Brokers or through

     brokers/commission agents. The market norm is that growers deliver cotton seeds at thefactory of customer, where it is weighed and than entered into the factory premises and is

    kept separately with proper marking of weight and supplier name. Regarding the price ofgoods delivered it is mutually agreed at the time of receipt of goods that whatever will be

    the market rate of phutti in 8th

     day or 5th

     day will be paid to the grower.

    Moreover the inventory holding period of the client is minimum 3 Days, but it usually

    varies to 4-5 Days in higher consumption seasons.

    The customer requires a proper financing mode to serve this need and to arrange an easy payment connection between the payment receipts from ultimate customers and payment

    to be made to the suppliers.

    Required:

    1)  What factors must be considered by you before finalizing Shariah Compliant

    process flow for the client.

    2)  Devise a process flow based upon your recommendations.

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    Case for Credit Purchase-Advance Level

    Ali & Co is the sole distributor of Haleeb Products for different areas of Lahore. Ali

    & Co purchases different products on 45 days credit directly from Haleeb. The

    minimum inventory holding period is 10 days and the Customer uses FIFO inventory

    system. The goods usually arrive in trenches with a gap of 5 days between twotrenches. (Assume 4 trenches and delivery starts after two days of placement of order)

    The client has approached Islamic bank for 120 days Murabaha Facility amounting toRs. 30 million for purchase of Haleeb products at Profit rate of 10% p.a.

    1)  Kindly suggest the proposed process flow for the said transaction along with key

    points to check.

    2)  If Minimum inventory holding period is “1” day than what additional controls

    will be exercised.

    3)  If goods are directly delivered to the customers through “Haleeb’s” vehicle, can

    murabaha be offered in this case?

    Case for Advance Murabaha - Cotton Industry (Advance level)

    Abdullah Textile Mills is a spinning unit, established in 1991 with installed capacity of

    23,400 spindles & 400 rotors. The Company is engaged in manufacturing of ring spun

    cotton yarn. Abdullah Textile Mills purchases cotton bales and cotton waste from localand foreign  market. Purchases of cotton bales are done on advance payments to

    suppliers. Payment done to the suppliers for local purchases depends on the weight of the

     bales as the weight of each bale varies due to the moisture presence.

    The delivery for the goods takes place 03-04 Days after placing the order to the supplier.

    Invoices for the purchases are available to the customer after the receipt of goods at thewarehouse, so the price of the goods can only be confirmed after weighing the goods atthe customer’s premises. Sometimes the weight of the bales is lesser than the amount

     paid to the supplier; on this occasion the supplier returns the excess amount to the

    customer or vice versa..

    The customer has reached Meezan Bank for financing over the said goods, and requires a

     proper procedure that does not disturb the customer’s procedure of purchases.

    You are required to suggest the best suitable structure of financing for the customer

    and the procedure for the customer keeping the view of devised structure.

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    Case for Sight LC Murabaha

    M/s Converters (Pvt.) Ltd is a manufacturing based concern in packaging material andaccessories located at 24 KM off Raiwind Road near Hi Tech Feeds Lahore. The

    customer purchases colors, sheets, chemicals, packaging material, dyes, ink, polythene

    sheets of various qualities and other related packaging material related to their

    manufacturing process through foreign suppliers. Customer has business relationshipswith foreign manufacturers and has LC arrangements with other banks as well. Islamic

    financial mindset has brought him to Meezan Bank to fulfill this need.

    Usually customer settles a deal with foreign supplier and opens a LC from a local bank in

    the name of the beneficiary’s banks. Generally customer has Sight LC arrangements with

    the supplier. Customer has approached Meezan Bank to execute this import exercise, andalso provides a credit facility over the imported goods.

    Meezan Bank usually charges K+2% for the financing period. According to the banks policy the documents are endorsed in the name of Meezan Bank, and bank is being

    considered as the owner of the goods.

    Required:

    Provide the most suitable method to finance the imported goods and devise a proper

    process flow for the same.

    Provide a list of documents to be used in the financing transaction.

    Case for Murabaha FIM (Import)

    M/s Jabees Pharma is a pharmaceutical company and located at Superhighway Nooriabad. The customer purchases pharmaceutical chemicals, liquids and material

    related to their manufacturing process through local suppliers. Customer does not haveany relationship with banks and have not done any purchases across the border.

    Jabees Pharma has a limited share in the industry and only fulfilling their production

    requirements through mainly cash sales, partial credit sales and limited credit purchases.

    Recent increase in the market demand for their products, have urged them to import rawmaterial for their production. Jabees Pharma has approached Meezan Bank to aid their

    imports. Customer is willing to arrange a Pledge arrangement for the imported goods to

    securitize the payment for bank. Customer expects some previous credit receipts from themarket, and prepared to arrange the funds within 180 days at different agreed intervals.

    Meezan Bank has evaluated the customer and accepted the offer to aid the importingneeds and prepared to offer a K+2.5% profit rate to the customer.

    Required:

    Devise a financing process flow for the customer with complete list of

    documentation required for the transaction.

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    Case for Murabaha against Export Usance Bill (Discounting)

    Karachi Garments is a huge manufacturer and exporter of Garments and Apparel and are

    working since 1970. Majorly all the raw material is purchased from the local market and

    their foremost sales are overseas. Karachi Garments had sufficient credit lines with

    different banks but due to the Islamic mindset; they have shifted their major businesswith Islamic Banks. Currently they are having Murabaha, Ijarah and Istisna credit lines

    with Meezan Bank, along with Letter of Guarantee arrangements as well.

    Currently customer is preparing to export his finished goods to Germany, and his

     purchasing party has negotiated a Usance period of 90 Days. Due to old business

    relationships, customer has accepted the deal and ready to ship the consignment. KarachiGarments needs raw material for further production, but are in shortage of funds.

    Customer has acquired Clean Export Bill with a 90 Days Usance period.

    Customer has approached Meezan Bank to discount the Export bill to fulfill the working

    capital needs. Being an Islamic bank it is not possible to discount a bill through assigning

    the receivable. Meezan Bank can offer Murabaha facility for purchases of raw materialfor further production at a rate of K+2% for 90 Days financing period.

    Required:

    How can the customer Discount the export bill, provide an available option along

    with the complete process flow of the transaction

    What additional measures are to be taken before providing funds to the customer

    under Murabaha Arrangement?

    Case of Local Pledge Spot Murabaha (Advance Level)

    Bami Khan Flour and General Mills are serving the Flour industry since 1999. They are ahuge purchaser of Wheat from farmer and growers. Their flour mill is serving an ample

     population surviving at Islamabad and areas nearby. Bami Khan Flour and General Mills

    maintain an inventory for 6 months production. Their purchases are procured in a

    separate warehouse situated at their flour mill.

    Current high flour demands have urged them to buy the wheat through Meezan Bank for

    them and will purchase the stock from Meezan Bank as per the requirement of productionwith the passage of time. Their cash flow at the moment has restricted them to purchase

    the stock in one go; so as to fulfill the need they require financing over the wheat

     procurement.

    Bami khan wanted spot facility where profit is charges for the number of days the facility

    is utilized.

    Meezan Bank decided to offer a Pledge Spot Murabaha to the client with a K+4% profitrate. As the goods will be shown in the inventory of the bank and will sell the goods to

    the customer in certain tranches as per the requirements from the customer.

    Required:

    Please devise a Process flow for the above mentioned client, along with the

    important points to be observed for the transation.