Application of murabahah mode of financing by Islamic banks of Bangladesh: issues and recommendations

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Murabahah is a sale contract whereby the seller adds a markup with cost and discloses the amounts to the buyer. Islamic banks apply this concept to finance their customers on a short- and long-term basis. In fact, about 70 per cent of the total investments of the Islamic banks in Bangladesh is based on the murabahah concept. However, the application of this concept varies from bank to bank and product to product. Some of the practices face heavy criticism from different stakeholders. This research aims to identify the application of murabahah by the Islamic banks in Bangladesh in offering various investment products and compare these practices with the Shari'ah requirements of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and other reputed Shari'ah authorities. The research adopted a content analysis approach whereby the murabahah contract documents of all full-fledged Islamic banks in Bangladesh are examined. The research further conducted interviews of Islamic banking practitioners to establish the process flow of different murabahah-based investment products and conducted focus group discussions to validate the findings. The research finds the scope for improvements that the Islamic banks of Bangladesh may consider in achieving greater compliance with the AAOIFI Shari'ah standards. The research also proposes relevant recommendations for consideration of the Islamic banks of Bangladesh. The findings and recommendations of the research would be a reference for the Shari'ah governance functions of Islamic banks including the Shari'ah supervisory boards in identifying the potential weaknesses and to take steps in addressing those weaknesses
Murabahah , Islamic banking , Shari'ah , Investments
Hossain, M. M., Khadem, M. A. R. K., & Ahmed, M. U. (2023). Application of murabahah mode of financing by Islamic banks of Bangladesh: issues and recommendations. Bank Parikrama, 48(1&2), 40-71.

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