EVALUATING MURĀBAḤAH FINANCING IN SRI LANKA: PRACTITIONER PERCEPTION

Abstract

The most popular service offered by Islamic financial institutions is Murābaḥah financing. Thus, the purpose of this research is to investigate the historical roots of the Murābaḥah contract and its modern financial derivatives. The legal stratagems (LS) used to create these derivatives are themselves a source of criticism. Hence, the validity of these legal stratagems is analyzed through classical and contemporary literature. In addition, an investigation on the use of Murābaḥah instruments in Sri Lanka is carried out by conducting thematic analysis on interviews with nine respondents who are both practitioners and scholars of Sharīʻah. Based on the findings, it was determined that the mere presence of LS does not render a contract void. However, there should be some standards and limitations placed on the application of LS. In addition, there is a disconnect between the theory and practice of Murābaḥah in IFIs, in which practitioners frequently tend to conflate Murābaḥah financing with conventional loans due to a lack of understanding of the concept of LS. In order to ensure the legality and feasibility of using Murābahah financing and other products, this study suggests that IFIs not only educate their employees on the basics of Islamic finance, but also have Sharīʻah review and audit systems in place on a regular basis.