IMPACT OF MURABAHA TRANSACTION ON INTEREST-FREE BANKS, A NECESSITY FOR LEGAL AND SHARIA PROTECTION

Abstract

Murabaha transaction is one of the most important financial tools for interest-free banks. Most interest-free banks use this tool because it is risk-free to some extent.  However. There are still some issues related to this transaction that impact the interest-free banking industry negatively. Murabaha transaction in Interest-free banking depends on the promise. As the client promise the interest-free bank that he will buy the specific item from the interest-free bank after the bank buys it from the supplier of the goods. However, the client sometimes does not fulfill his promise. In this case, the interest-free bank loses an amount of money because the client fails to take the item from the bank. Therefore, this paper will attempt to find solutions for this issue. Thus, there should be a protection law for protecting interest-free banks from default clients. Furthermore, there should be a Fatwa for interest-free banks to keep mortgages from clients and take their losses in the case when the clients do not perform their promises to buy the items on the Murabaha basis. Hence, Interest-free banks should be protected by law from losses that occur through Murabaha transactions. In that context, this paper will criticise the Murabaha contract and find out methods for protecting interest-free banks from losses via this type of transaction.