MPO Implementation

The stages in the MPO are: Pre-Promise Stage, Promise stage, Agency
stage, Purchasing / acquiring possession stage, Execution of Murabaha
stage, and Post-execution of Murabaha stage. Discuss the key aspects of
each stage. Do you think the process is fair to the financial Institution.
Discuss.

Murabaha to Purchase Orderer

Murabaha to the Purchase Orderer

A murabaha to the purchase orderer transaction wherein the Islamic bank purchases an
asset/commodity, upon the request of a customer, from a third-party seller, in order to
resell it to that customer on a deferred payment basis. The bank will not resell the
asset/commodity unless title has been transferred from the seller to the bank. This type
of murabaha is widely used by Islamic banks, especially in foreign trade-financing
operations. The purchase orderer can approach a bank, expressing his wish to buy a
specific good. This wish may not be seen as a promise or commitment by the customer
to purchase the goods unless the promise has been documented in an official
requisition form.
In this respect, murabaha to the purchase orderer (MPO) comes in two types: binding
MPO, and unbinding MPO.
Murabaha to the purchase orderer is also known, in Arabic, as murabaha lil amer bil
shira or murabaha lil wa'aed bil shira.
The MPO comprises three distinct contracts:

Master contract

Agency contract

Actual Murabaha contract

Murabaha transactions also involve other contracts like promise to purchase.

Stages of MPO
Another variant of the MPO is Customer as the Banks Agent to Buy The general structure
of this variant involves six major stages:

Pre-promise Understanding

Promise Stage

Agency Stage

Acquiring Possession

Execution of Murabaha

Post-execution

Across these stages the relationship between the bank and client is that of:

Principal and agent

Promisor and promisee

Buyer and seller

Seller and buyer

Creditor and debtor

At this stage, the bank and the client sign an MoU.
Pre-requisites for the pre-promise stage are:

The contract must be authentic.

It cannot be used for providing liquidity or for business involving ready cash.

Past contracts are excluded.

The supplier has to be a third party.

The commodity should conform to Murabaha standards.

The bank should check the credibility of the commodity; the client should be tested
for cash flow and risk profile.The client will purchase the commodity as the banks
agent. Both the parties sign a general purpose agreement of agency.

Pre-requisites for the promise stage are:

The bank signs a master Murabaha facility agreement, or MoU.

This MoU may support sub-Murabahas.

With mutual consent, the agency agreement may be signed.