Islamic Working Capital Finance through Murabaha for a Construction Company

Islamic Working Capital Finance through Murabaha for a Construction Company



The case study entails a construction company looking to finance diesel, bitumen, and petrol to be used as working capital in its construction projects. In this case study, the financing method is Murabaha to create an absolute working capital finance service for a company. A customised Murabaha process is designed and applied with subsequent changes due to various market and external factors for that specific purpose.

As the company was looking for finance or investment to buy diesel, bitumen and construction material for which the bank’s relationship manager proposed Murabaha to the construction firm on which both parties with mutual consent agreed on the terms that the bank will finance them the required material for upcoming projects.

Some steps are involved in proceeding with the Murabaha based finance;


The bank always needs some specific documents from the company: memorandum of association, article of association, and Form no. 29. The bank also collected the list of suppliers with whom the company was buying the material. The company’s financial manager also submits a credit information report to the bank to understand the cash inflows and outflows of the company.

Preparation of proposal:

According to the company’s requirements based on its normal working capital cycle, the Islamic bank prepared a Murabaha proposal. Moreover, after analysing the situation, the bank agreed to finance the company up to Rs. 10 million.

Market and Client Research:

The research highlighted the actual service requirements and helped the bank to tailor the mode. The bank also contacted the chamber of commerce and got insights about the market and product before the selection and specification.

Multiple Stage Evaluation Process:

After the bank’s relationship manager’s research, it is sent to the branch manager to review and give recommendations.

Comparative Evaluation and common market effect:

When the previous steps are done, the bank then accesses the company’s credit information report and finds out that the company is financially weak. There were some delayed payments in the customer’s banking history. There are many reasons for delaying the payment, but the main reason mentioned in the case study is that it was due to some financial crisis in the whole economy.

Cultural Impact:

Some property is kept as a mortgage to avoid loss. The issue in this case study was that the property was not in the name of the borrower, so they made sure that this is in the owner’s knowledge. The product development and shari’ah compliance (PSDC) customised the Murabaha finance process for this specific case.

Process flow and customisation:

The construction company suggested some changes and amendments in the good’s supply chain because every company’s situation varies, and so does the requirements.

Adoption of the contract:

Both parties adopted the MMFA, working capital at a mutually agreed price which was cost plus margin X.

The role of legal entities & takaful company:

The legal requirements must be fulfilled as per Shari’ah compliance and ensure that the banks violate no rules. PDSC’s role is vital, as they developed a customised flow for the case to ensure the sales between the bank and the supplier.

Then the takaful company applied the takaful model to cover the risk attached to the location and goods.

The role of suppliers:

The directors and financial managers of the construction firm signed the undertaking against the finance and agreed on some suppliers, which will onwards work as the bank’s vendors.


There are a series of steps involved in this Islamic financing model; Murabahah. Every factor is taken into consideration. Despite providing a loan to the construction company, the bank makes the company their vendor and sells them the products as per the price with the markup margin as decided with mutual consent. This model is not creating a boom in the financial market, but it also directly affects real estate. After receiving the company’s loan request, the bank does deep research about the client and market, most importantly, the previous credit information record of eliminating every kind of ambiguity.