Contract agreement model for murabahah financing in Indonesia Islamic banking

Abstract

Purpose The purpose of this paper is to measure the pattern of contract agreement process to map various banks’ position in perceiving Sharia conduct. This is done by incorporating the dynamics of culture, market demand and Sharia literacy in different banks. Finding of this research will serve as the formula to map the latent degree of Islamic bank’s commitment to their strategic vision and identity as an Islamic-based financial institution. Design/methodology/approach This research develops its theoretical background in classical and contemporary literature review on murabahah contract in Islamic perspective. Focus group discussion (FGD) and in-depth interview are conducted on 32 bankers (in 14 Islamic banks), two National Sharia Council, five academicians and three central bank representatives as an input for qualitative analysis. Content analysis is utilized in this paper to emphasize the process of discovering the relationship between dynamic factors affecting contract agreement process in murabahah scheme in Indonesian banking. Findings There are four dimensions affecting the contract agreement: fairness to customer, country regulation, perceived business practicality and product characteristic. The four dimensions are assumed to be influenced with categories proposed, as the category item is mostly repeated and is perceived to be significant in the participant’s perspective. Originality/value This research will be beneficial in mapping the determinant of degree of Sharia compliance in Sharia banking in Indonesia, focusing on the contract agreement process.

The Interest in Islamic Finance Contracts in Saudi Arabia as Viewed by Google Trends

“…Murabahah is a prevalent contract in which the bank provides the cost and profit margin of an asset (Alsayyed, 2010). In this contract, the Islamic bank buys a certain commodity from the seller at the request of the customer, then the bank sells the commodity to the customer at a higher price (Shofawati, 2014;Wulandari, Putri, Kassim, & Sulung, 2016). The difference between the two prices represents the profit gained by the bank.…”

“…9; shall then pay the installments of the transaction to the bank as agreed in advance (Shaikh, 2011). Murabahah is widely used to finance purchases of goods, real estate and cars (Abdul-Khaliq, 2014;Wulandari et al, 2016).…”

Recovery Issues on Murabahah Financing in Malaysia

“…Murabahah financing is the most dominant financing in majority of the Islamic banks in the world (Ismal, 2009;Usmani, 2003;Wulandari, Putri, Kassim, & Sulung, 2016). In Malaysia, it accounts for 37.2% of the total Islamic financing of approximately RM436 billion in 2016, way surpassed its counterparts, the Al Bai Bithaman Ajil and Ijarah at 15.9% and 16% respectively.…”

Freedom of Contracts and Dispute Settlement Between Conventional Banking and Sharia Banking

“…The rapid growth of the Islamic banking industry has opened a contract system based on Islamic law, as a new discourse and alternative economic system (Ismal, 2013;Imam and Kpodar, 2013;El Qorchi, 2005). Moreover, the system of contract and dispute settlement mechanisms in this industry was also extensively studied (Wulandari et al, 2016;Wahyudi, 2019;Harahap and Hasanah, 2018;Ningsih and Disemadi, 2019;Triana, 2017). The development of Islamic banking in Indonesia has become an interesting study from both an economic and legal perspective.…”