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Treasury, liquidity and hedging

Commodity murabaha

Interbank and treasury deals in which commodities are bought and sold on deferred payment to place or raise short-term funds.

Commodity murabaha is the use of murabaha sales of commodities, usually metals traded through brokers, to place or raise funds between financial institutions or with corporate treasuries. The funds provider buys a commodity for cash and sells it to the counterparty at cost plus profit on deferred payment, and the counterparty usually sells it on for cash, which makes the arrangement a form of tawarruq. IIFM publishes a master murabaha agreement and a master agency agreement for the purchase of commodities to standardise these deals.

Sources

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

Related terms

TawarruqBuying an asset on deferred payment and selling it to a third party for cash, to raise liquidity. Its organised form is contested.MurabahaA sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.Collateralised murabahahA murabaha placement secured by collateral such as sukuk, used as an Islamic alternative to a repo.Interbank investment wakalahAn interbank placement in which one bank invests another's funds as agent for a fee, targeting an expected but not guaranteed profit.Tawarruq-based term depositA fixed-return term placement in which the customer sells a commodity to the bank on deferred payment.