Abstract

Murabaha, the most popular Islamic finance contract, has been subject of many studies. In its simplest form it is buying and selling with profit and has two forms: Asset based and Asset backed. Upto now, there are many studies on asset based Murabaha sale, which consist of buying a product and selling, transferring ownership, to loan seeker simultaneously in exchange of debt obligation. With this structure asset based Murabaha has been subject of much criticism. This article introduces the concept of asset backed Murabaha sale, by which financier holds the title of product until final sale to loan seeker, from a case of sugar structured trade commodity financing. In addition to discussion of general risk issues, special focus on commodity price risk management: margin calculation and margin call methods proposed so that Islamic finance industry can manage asset backed Murabaha contract without recourse to additional security of bank guarantee, mortgages, etc. or disallowed, by Islam, derivative based commodity price hedging products.

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