Title: Two-step Murabaha in stock exchange as an alternative to commodity Murabaha for liquidity management

Authors: Ahmet Suayb Gundogdu; Erhan Dogan

Addresses: Islamic Development Bank Group, Qasr Khuzam Street, Saudi Arabia ' Takasbank, PO Box 34381 Sisli, Istanbul, Turkey

Abstract: Islamic banks today are criticised by many for not being different from conventional banks owing to their indulgence in non bona fide transactions. The liquidity management practice of commodity Murabaha is one of the most controversial. Islamic banks resort to Tawarruq-based commodity Murabaha in Metal Exchange (buying and selling metal contracts) to manage their liquidity positions. As the structure is based on organised Tawarruq, which has been disallowed by the Islamic Fiqh Academy, Maqasid Al-Shariah is missed. On the other hand, every year many viable trade opportunities are missed owing to lack of funds for trade finance. The main aim of this paper is to develop a system to divert the funds of Islamic banks from questionable commodity Murabaha to the real economy through trade finance via Letter of Credit (L/C) financing under a two-step Murabaha framework in stock exchange.

Keywords: two-step Murabaha; liquidity management; commodity Murabaha; trade finance; Tawarruq; Islamic banking; Islamic finance; letters of credit; stock markets.

DOI: 10.1504/IJFSM.2014.065583

International Journal of Financial Services Management, 2014 Vol.7 No.3/4, pp.268 - 285

Received: 11 Jun 2014
Accepted: 17 Aug 2014

Published online: 29 Oct 2014 *

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