Return and Reverse murabaha: Difference between pages

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1. ''Investment appraisal.''
''Islamic finance.''


Return is the surplus of the amount received back from an investment, compared with the initial amount invested.  
Reverse murabaha is an Islamic finance instrument that is used to obtain cash immediately.


To facilitate comparisons, return is usually expressed as a percentage of the initial amount invested, often as an effective annual rate of return.


When expressed on this basis, the rate of return is also known as 'yield'.
It is similar to a standard [[murabaha]] structure, but with an extra leg.  


The standard part of the structure involves the bank buying the commodity from a goods supplier and selling it on to its customer on a deferred payment basis.


Returns can be negative.  
The extra step involves the customer selling on the commodity (usually back to the original goods supplier) against immediate cash payment.


Negative returns mean that the amounts received back from an investment are less than the amounts initially invested.


The customer is left with cash in hand and a deferred payment liability to the bank.


2. ''Investment appraisal.''
In addition to credit risk on the customer, the bank also takes on asset risk and third party risk of the supplier reneging on the supply agreement.


Return can sometimes also mean the total amount received back at the end of investment period, including the initial amount invested.


Here as elsewhere, transparency and consistency of definitions are essential.
Reverse murabaha is also sometimes known as 'tawarruq' or 'monetization'.
 
 
3. ''Reporting.''
 
A return is also a regular and standard-formatted report.
 
For example, a tax return made to a tax authority.




== See also ==
== See also ==
*[[Effective annual rate]]
*[[Credit risk]]
*[[Financial risk]]
*[[Islamic finance]]
*[[Holding period return]]
*[[Murabaha]]
*[[Interest]]
*[[Investment appraisal]]
*[[Performance spread]]
*[[Portfolio investment]]
*[[Rate of return]]
*[[Rewarded risk]]
*[[Risk]]
*[[Total return]]
*[[Yield]]


[[Category:Corporate_finance]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Financial_products_and_markets]]

Latest revision as of 01:25, 5 March 2021

Islamic finance.

Reverse murabaha is an Islamic finance instrument that is used to obtain cash immediately.


It is similar to a standard murabaha structure, but with an extra leg.

The standard part of the structure involves the bank buying the commodity from a goods supplier and selling it on to its customer on a deferred payment basis.

The extra step involves the customer selling on the commodity (usually back to the original goods supplier) against immediate cash payment.


The customer is left with cash in hand and a deferred payment liability to the bank.

In addition to credit risk on the customer, the bank also takes on asset risk and third party risk of the supplier reneging on the supply agreement.


Reverse murabaha is also sometimes known as 'tawarruq' or 'monetization'.


See also

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