An established Islamic bank, represented by Rodyk, enforced its mortgages and obtained judgment on Islamic banking facilities against 2 vessels arrested and sold judicially in Singapore. The Islamic financing facilities involved commodity murabaha financing and Islamic letters of credit.

Commodity Murabaha explained

The diagram below sets out a typical commodity murabaha financing structure and the stages involved:

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Stages:

  1. Bank purchases commodity from seller at cost price (CP)
  2. Bank sells commodity to Customer at sale price (CP + Profit) on deferred payment basis
  3. Customer on-sells commodity (through agency of Bank) to Commodity Buyer at CP and Customer receives CP from the Bank
  4. Customer pays Bank the sale price on deferred payment basis over a period of time

The eventual outcome of the above commodity financing structure is that the customer obtains the benefit of the cost price now (i.e. a loan in conventional financing terms) and it will repay the Bank, over a period of time, the sale price inclusive of the pre-agreed profit (regarded in conventional financing as the interest).