Islamic Working Capital Finance through Murābaḥah for a Construction Company

Abstract

This case study presents a narrative of how mur¯abah. ah, a sale-based Islamic mode of financing, applies in the banking routine to create a real working capital finance service to a construction company. The construction company was looking to finance diesel, bitumen, and petrol to be used as working capital in its construction projects for the Government. The case presents interesting episodes of the client company and the bank as to how they reached the situation of applying mur¯abah.ah and how that fits in within the broader Islamic banking regulatory framework of the country. A customised mur¯abah.ah process flow is designed and applied with subsequent changes due to various market and external factors. The case shows how the bank purchases the goods from refineries and sells the same at a cost-plus to the construction company and how all settlements are made till the maturity of the case while maintaining Shar¯i‘ah compliance. Many supporting parties such as tak¯aful company, legal entities, credit information bureau, and suppliers provided supporting services to execute mur¯abah. ah in the context of working capital finance. The roles of each party and issues in the application process are discussed.