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Socioeconomic Impact of Murabaha Financing: Open Market (Sugar Cane)

Murabaha financing provided by Meezan Bank has socioeconomic benefits over interest-based loans from conventional banks like HBL. With Murabaha, the individual benefits because the bank assumes the risk if goods are damaged during purchase. There are also economic benefits as nearly all funds are converted to goods, stabilizing prices by balancing money supply and production. Finally, there are social benefits as haram or harmful goods cannot be purchased through Murabaha, unlike interest-based loans.

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55 views4 pages

Socioeconomic Impact of Murabaha Financing: Open Market (Sugar Cane)

Murabaha financing provided by Meezan Bank has socioeconomic benefits over interest-based loans from conventional banks like HBL. With Murabaha, the individual benefits because the bank assumes the risk if goods are damaged during purchase. There are also economic benefits as nearly all funds are converted to goods, stabilizing prices by balancing money supply and production. Finally, there are social benefits as haram or harmful goods cannot be purchased through Murabaha, unlike interest-based loans.

Uploaded by

inaya khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Lecture 13

Socioeconomic impact of Murabaha Financing

Open Market (sugar cane)

Interest 10% (1.1 mio)

Mr. A HBL

Loan I mio

Mr. A goes to HBL and asking for the loan for Rs. 1.0 million to purchase the sugar cane. HBL

extend him a loan of Rs. 1.0 million.

Now, Mr. A purchases the sugar cane from the open market and keep on paying the interest

to HBL on monthly basis.

Open Market (sugar cane)

Mr. A MBL

cost 1.0 mio


Profit 0.1 mio
S.P 1.1
Mr. A goes to MBL and asking for the loan for Rs. 1.0 million to purchase the sugar cane.

MBL refuses to extend him a loan of Rs. 1.0 million because every loan transaction

which derives benefit is Riba.

Meezan Bank purchases the sugar cane from the open market and sells it to Mr. A for Rs.

1.1 mio

Difference in terms of socioeconomic perspective

Individual benefit

In case of HBL, if something bad happens with the sugar cane during purchase, who is liable;

The answer is Mr.A

However, in case of MBL if something bad happens with the sugar cane during the purchase

stage; who is liable; the answer is Meezan bank

So, in case HBL there is no individual benefit to Mr.A as he is shouldered with risk and

responsibility of loss

However, in case of MBL. Meezan bank is liable and NOT Mr.A ; so there is a benefit to Mr.A

Talking about insurance and Takaful

  HBL MBL
  EFU Pak Qatar Takaful
Sum
1.0 mio 1.0 mio
Insured
Claim 0.8 mio 0.8 mio
Loss 0.2 mio 0.2 mio
Mr. A is Meezan bank is
 
liable liable
Economic Benefit

In case of HBL, there is every probability that after getting loan from the HBL, Mr. A shall not

purchase the sugar cane or any asset.

Or

In case of HBL , there is every probability that the loan amount will not be converted in

goods that leads to more money supply in the economy in the long run than the goods

produced in the economy which leads to inflationary pressure.

Money Supply Goods and services

According to research, 69% of the loan amount were utilized in purchasing goods.

However, in case of MBL, there is no probability that the Murabaha funds shall not be

converted into goods because Meezan bank itself purchases the sugar cane

Hence, Money supply shall equate with the goods produced in the economy which leads to

price stability.

Money Supply Goods and services


According to the research, 97% of the Murabaha funds were converted into goods.

Social Benefit

There is every probability that after getting loan amount from HBL, Mr.A shall purchase

Haram goods or injurious goods for example wine, tobacco, bars, casino etc. Hence,

there shall be a negative effect on these things towards the society.

However, Meezan bank cannot purchase goods which are Haram or injurious in nature

hence benefit the society.

Economic Social
Bank Individual Benefit (Mr.A) Benefit Benefit
HBL No No No
MBL Yes Yes Yes

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