Murabaha documentation and transaction mechanics
Produced in partnership with King & Spalding
Murabaha documentation and transaction mechanics

The following Banking & Finance guidance note Produced in partnership with King & Spalding provides comprehensive and up to date legal information covering:

  • Murabaha documentation and transaction mechanics
  • Loan vs. Murabaha transaction mechanics
  • 'Rollover' differences
  • Prepayments
  • Late payment
  • Conditions precedent
  • Covenants and other provisions

A basic murabaha and a commodity murabaha arrangement can both be structured to facilitate a single transaction, or to operate on a revolving basis so that several transactions can be entered into under the same facility. For more information, see Practice Notes: The structure and required elements of a murabaha transaction and Commodities murabaha.

Both types of documentation will provide the same basic mechanics for entering into transactions. However, for a revolving facility, the customer (the Customer) and the finance provider (an Islamic financial institution (IFI)) will usually enter into a master agreement that will govern the basic terms of their future transactions, with the particular terms of a given transaction identified at the time of such transaction. This approach resembles in both form and substance conventional contracts such as the revolving loan facility and the note purchase facility. Under all of these arrangements, a customer may request a transaction (a sale transaction, loan or note issuance, as the case may be) based on the basic terms set forth in an underlying master agreement, with variations for each transaction based on the specifics of amount, time, rate and so forth.

Sometimes a finance provider will participate indirectly in a murabaha facility through the use of conventional loan documentation. Over the past twenty years, Islamic finance participants in the UK have worked