Murabahah and Non-binding MPO
CA-3.2.3
This section is broadly divided into (a) Murabahah and non-binding MPO and (b) binding MPO, as the types of risk faced by the
Islamic bank licensee are different at the various stages of the contract for the two categories.January 2015CA-3.2.4
This classification and the distinctions between a non-binding MPO and a binding MPO are subject to the criteria and opinions set by the respective SSB of the
Islamic bank licensee .January 2015CA-3.2.5
A Murabahah contract refers to an agreement whereby the
Islamic bank licensee sells to a customer at acquisition cost (purchase price plus other direct costs) plus an agreed profit margin, a specified kind of asset that is already in its possession. An MPO contract refers to an agreement whereby theIslamic bank licensee sells to a customer at cost (as above) plus an agreed profit margin, a specified kind of asset that has been purchased and acquired by theIslamic bank licensee based on a Promise to Purchase (PP) by the customer which can be a binding or non-binding PP.January 2015CA-3.2.6
In a Murabahah transaction, the
Islamic bank licensee sells an asset that is already available in its possession, whereas in a MPO transaction theIslamic bank licensee acquires an asset in anticipation that the asset will be purchased by the orderer/customer .January 2015CA-3.2.7
The price risk in Murabahah contracts ceases and is replaced by
credit risk for the amount receivable from the customer following delivery of the asset. Likewise, in a non-binding MPO transaction, theIslamic bank licensee is exposed tocredit risk on the amount receivable from thecustomer when the latter accepts delivery and assumes ownership of the asset.January 2015
