Murabahah Financing for a Small Medium Enterprise (SME)

Abstract

Murhabahah is one of the most used financing modes in Islamic financial services. This case provides a detailed account of execution of murabahah financing for Small and Medium Enterprise (SME) dealing in general supplies. Murabahah is cost-plus sale, where the Islamic Bank purchased generals supplies from Lahore and Karachi markets and sold the same to the Small and Medium Enterprise (SME) in Peshawar at a cost-plus price receivable to the Bank in six months. The management of the bank scrutinised the client’s application for murabahah financing to mitigate different types of risk exposures such as late payments to suppliers in the past. In addition, a customised process flow was designed to ensure smooth flow of process in compliance with Shariah. The case reveals a pragmatic 42 steps long process of how murabahah implementation happens for SMEs in local market, which extend our understanding in terms of identifying micro processes that happened in the murabahah implementation, which are usually missed by the abstract theory on murabahah. Keywords: Murabahah, financing, small and medium enterprise (SME).