Bai-Muajjal:

Meaning,
Feature,
Application, Processing and preparation
of Market Report and its significance,
fixation of selling price goods security
etc.

Md. Omar Faruk Khan

Vice President &
Faculty Member, IBTRA

A.Meaning:
Islami Bank Bangladesh Ltd. operates its
investment activities mainly through 3
(three) mechanisms i.e. Bai-mechanism,
Share-mechanism and Ijara-mechanism.
The "Bai-Muajjal" Modes is one of the
important and popular Investment Mode
under Bai-mechanism.

The Term "Bai-Muajjal" have been derived

from the Arabic words "Bai" and "Ajal." The
word "Bai" means purchase and sale and the
word "Ajal" means a fixed time or a fixed
period. Bai-Muajjal means sale for which
payment is made at a future fixed date or
within a fixed period. In short, it is a sale on
credit or on deferred payment.

Definition:
"Bai-Muajjal" is a contract between the Bank
and the client (Seller and Buyer) under which
the Bank (Seller) sells to the client (Buyer)
certain specified goods (permissible under
Shariah and law of the country), Purchased
as per order and specification of the client at
an agreed price payable within a fixed future
date in lump-sum or by fixed installments.

Important features:
Bank is not bound to declare cost of goods and
profit mark-up separately to the client.
Spot delivery of the item and payment is deferred.
Ownership and possession of the goods is
transferred by the Bank to the client before receipt
of sale price.
Client may offer an order to purchase by the Bank
any specified goods and committing himself to buy
the same from the Bank on Bai-Muajjal Mode.
It is permissible to make the promise binding upon
the client to purchase from the Bank. That is, he is
to either satisfy the promise or to indemnify the
damages caused by breaking the promise.

Cash/Collateral Security should be obtained to

guarantee the implementation of the promise or to
indemnify the damages.
Mortgage/Guarantee/Cash
Security
may
be
obtained before / at the time of signing the
agreement.
Stock and availability of goods is a pre-condition
for Bai-Muajjal agreement. The responsibility of
the bank is to purchase the desired goods at the
disposal of the client to acquire ownership of the
same before signing the Bai-Muajjal Agreement
with the client.
The Bank after purchase of goods must bear the
risk of goods until those are actually delivered to
the client.

The Bank must deliver the specified goods to

the client on specified date and at specified
place of delivery as per contract.
The Bank may sell the goods at one agreed
price which will include both the cost price and
the profit.
The price once fixed as per agreement and
deferred can not be further increased.

Application:
If the intending client is a current account
holder of the Branch and proposal is found
suitable application for proposed Investment to
be obtained from the client as follows:
Head Office controlled Branches shall obtain
application from the Client in Duplicate (one
copy for Branch record and the other to be sent
to Head Office with the Proposal) alongwith a
forwarding in client's Pad.
Branches under Zone shall obtain application
from the Client in Triplicate (one copy for
Branch record and the rest two copies to be
sent to Zonal Office alongwith the Proposal.

The Zonal Office shall retain one copy for

their record and the other to be sent to Head
office alongwith the proposal.
If the Investment falls within the discretionary
power of the Branch, they will obtain only one
copy of application. For new Client and
renewal cases, application shall be obtained
on F-167A. Deal application shall be obtained
on F-136.
Attested photograph(s) of the client shall be
obtained and affixed the same on the top
right hand corner of the application.

Scrutinize the application and confirm whether

necessary papers and documents have been
submitted, all columns of the application have
been filled in toto and given particulars and
informations are complete and correct in all
respects and it is signed by the client and
verified by the authorised official of the Bank.
Enter the Application in the "Investment
Proposal Received and Disposal Register" B53 and allot a Serial Number to it.
Initiate action for Processing and Appraisal.

Processing and Appraisal:

After obtaining the application from the client an
"Appraisal Report" shall have to be prepared
on 167B to arrive at a decision, whether the
proposal can be accepted and viable. For the
preparation of Appraisal Report the following
informations should be carefully studied:
Observe whether the goods are permitted by
Shariah, otherwise reject outright the proposal.
Tally the Credit Restriction Schedule of
Bangladesh Bank and Head Office Current
Investment Policy/ Guidelines. Reject proposal if
it conflicts with the existing Policy/Guidelines.

Make a physical verification on the business

establishment of the client and be sanguine
about
genuineness
of
the
particulars,
information. Banker may talk to the business
and important personalities of the locality to
ascertain the Honesty, Integrity and Business
dealings of the Client.
Obtain confidential report of the client on F-12
from other local Bank Branches/Financial
institutions.
Obtain Report from Credit Information Bureau
(CIB) of Bangladesh Bank through Head Office
Investment Division as per Instruction Circular of
Head office in this regard.

Obtain declaration of the client about his liability

(both contingent and real) with other
Banks/Financial Institutions/, including any other
Branches of Islami Bank Bangladesh Limited.
Obtain Financial Statement/Balance Sheet of the
Client for the last three consecutive years for
Investment Proposals of Tk. 50.00 lac or above
as per Head Office Instruction.
Proposed Mortgage property is to be inspected
physically and Primarily the Market value and
forced sale value should be ascertain.
Lawyer's opinion on the documents is to be
obtained and opinion should be clear and without
ambiguity.

Sanction: On completion of Appraisal as provided

herewith above, if the proposal is found viable,
Sanction Advice have to be issued (F-191) duly
recorded in the Investment/Facility Sanctioned
Register (B-1991) with separate Account No., if it
is within the business power of the Branch
mentioning all the terms and conditions in
duplicate (One Copy shall be retained by the
client and other copy shall be returned by the
client duly accepted all the terms and conditions
to the branch) to the client and endorse copies to
Zonal office and Head Office retaining one copy in
the clients file duly accepted by the client.

Purchase of goods by the Bank

Remember that Bai-Muajjal is perfectly a legitimate
transaction according to the Shariah, provided:
That the goods desired by the Client is first purchased
by the Bank and ownership of the Bank on the goods
is established, i.e. the Bank must transform its money
into goods.
That after purchase of goods the Risk of the goods is
borne by the Bank until the possession of the
Merchandise has been passed on to the Client, i.e.
the Bank would have to continue to be responsible
until the goods were actually delivered to the Client,
not necessarily by the Bank, in accordance with
specifications and other terms of the contract.
That the specification of goods, delivery date, time and

In short, firstly, the transformation of Money into

goods by the Bank and secondly, to bear the
Risk of transformation and that of the goods by
the Bank until the same is handed over to the
Client are the two essential conditions, in order
to make a Bai-Muajjal transaction Halal.
Any deviation from the above two conditions will
deteriorate the transaction into purely financing
arrangements with the agreed profit which will
be nothing more than a camouflage for interest.

Procedure for working out the cost and

sale price of goods:
Cost price of goods consists of purchase
price plus expenditures incurred by the Bank
in connection with purchase/procurement.
Cost Price: Purchase price + All expenses
in
connection
with
purchase
/
procurement (conveyance, commission,
cost of remittance, transportation cost,
transit insurance, godown expenses etc.)

Sale Price of goods consist of total cost price

plus bank's profit mark-up.
Sale Price: Total cost price (as above) +
Bank's profit.
Here it may be noted that the goods desired by
the client is first purchased by the bank to
establish ownership on it and then to be sold to
the client.

Disbursement/ Sale and Delivery:

After receiving the goods, the Bank shall finally
calculate the total cost price and fix up the sale
price by mutual discussion with client.
Fix-up the schedule of payment of price of BaiMuajjal goods.
Execute Bai-Muajjal Agreements (AF-2).
Delivery the goods to the client after obtaining
proper acknowledgement by
putting his
signature on the same challan/cash memo/in
addition to purchase schedule on which the
bank's official/agent signed and received the
goods from the sellers on behalf of the Bank.

The Bank will then make payment of the value

of the goods to the seller / supplier by
Debiting of Investment Account- Bai-Muajjal
commercial etc., account of the client.
Delivery of goods should be given to the client
immediately after it is purchased, even from
the godown / store / ware-house of the
producers/ sellers / suppliers, of course , after
being duly received by the Bank.

If there is the condition in the Agreement to

pledge the goods with the Bank, the client
shall receive the goods and shall sign the
pledge deed and deliver the goods to the
bank on pledge.
The bank may, however, deliver the pledged
Goods to the client against trust receipts.
To make the whole process easier and to
minimize the risk, one tripartite sitting of the
sellers, Bank and the client may be arranged.

Payment by the client:

As per Bai-Muajjal Agreement between
bank and client it is agreed that the price of
goods is payable in instalments.
Before purchasing the goods by the bank,
sufficient collateral/securities have to be
obtained as mentioned in the sanction
advice
alongwith
required
charge
documents and papers duly executed, it
duly filled in, signed, stamped, verified and
witnessed where necessary.

The client will retain the goods delivered /to

be delivered under Bai-Muajjal Mode on
Trust as per Trust Receipt executed/to be
executed by him/them till disposal and
deposit of sale proceeds of the goods
towards adjustment of the related BaiMuajjal Investment Account(s) immediately
after sale irrespective of the due date of
payment of the Investment and will not
divert any sale proceeds of the related
goods under any circumstances and shall
not sell the goods on credit.