Musawamah

Do you know what Musawamah mean?
read the below article

Introduction
Islamic finance have been authorized since the early stages of Islam in the seventh century, it refers to the sorts of investments and corporation counting banks and other lending institutions in the Muslim community according to the Islamic law. Islamic finance and Banking is no longer just a dream. In truth it is now an actuality. There are several types of Islamic finance products and I have chosen Musawamah to present it in this report.

What does Musawamah mean?
For the most part of the Islamic banks and financial institutions principally Muslim world and non Muslims are using Musawamah, so what does Musawamah mean?
Musawamah is a common and regular type of sale which the price of the product to be traded is negotiated between seller and the buyer exclusive of any mention to the price paid or cost earned by the previous. The basic element that makes Murabaha different form Musawamah that a buyer ought to be familiar with the price of the products.
In addition, seller is not required to disclose his cost and both parties bargain on the price. Its can be used where the seller can or can not in a situation to determine exactly the costs of products that he is offering to sell, as a part of the bargain procedure.

Musawamah generally take places when it is difficult to decide what the cost of a particular product. In order to meet the terms with Shari'ah, there are many limitations to a Musawamah, including:
· The underlying products must be in subsistence and in the sellers’ possession at the time of the sale.
· The sale must happen immediately, future sale dates are canceled.
· The product must be of worth and in working condition.

Musawamah can be either cash or credit however, when it utilized by banks; it will typically be an overdue payment sale. Sometimes few of Islamic banks can get a price cut from the supplier over the normal sell price. Musawamah is more proper for single massive deal where the decision are made usually at the top level and the price is negotiated among parties, for instance: an airline in the Middle East may want credit purchase of an airplane estimating about $800 million. An Islamic bank may buy the airplane for $750 million and sell it to the airline after adding up its profit of $50 million, bearing in mind the credit period and the payment timetable. Minutiae of the sell price to the bank will not be wanted and the airline will be interested only in the final price.

Business in general utilized Musawamah since they are interested only in gaining profit which they receive all the way through pricing. At the same time most Islamic banks tend to use Murabaha. This because of straight use of any benchmark is quite easier in Murabaha than the case of Musawamah. It is simple for the bank management and the controllers to control the return fee structure in Murabaha. Further, possibility of corruption is negligible in Murabaha because whatever the height of price of the products the bank will be charging a profit margin tied up with cost price of the products.

Coming back to Musawamah, Musawamah also can be used by the agency organization, but it is preferable that the bank directly buys the products, mainly the costly products. However the bank also can involves the customers in selection of the supplier and the products to make sure that the products being purchased by the bank have all the necessities requested by the customer.

In the situation of products with an expensive price the structure used by banks will be Musawamah to purchase order. As in the situation of cheap products normally required by business and the community, banks or their specially created supplementary can keep inventory for sale to the customers on a Musawamah basis as and when demanded by the customers.

The situations of taking ownership, possession and business risk of the product can be appearing in Musawamah. Goods required for forward sale must come under the risk of the bank before implementation of the sale agreement with customer. Likewise, all conditions regarding topic, payment of the specific price and the action on case of non-payment, etc.
One of the risk management in Musawamah: Customer may reject to purchase the products after taking ownership as agent.

The financial institutions and banks can use the Musawamah as approach of finance by accepting the following procedure:

The customer and the institution sign an over-all contract where the institution guarantees to sell and the customer guarantees to buy the products from time to time.
When a specific product is required by the customer, the institution selects the customer as his agent for buying the product on its behalf, and an agreement of agency is signed by both the parties.
The customer buys the products on behalf of the institution and takes its possession as an agent of the institution.
The customer tells the institution or banks that he has purchased the products on his behalf, and at the same time, makes an offer to purchase it from the institution.
The institution agrees to the offer and the sale is bringing to a closed where the ownership and the risk of the product are moved to the customer.

Conclusion
Islamic Finance is a key for Muslims condition and recently Islamic banks also. Islamic finance is the tool which can enhance the security of possession and contribute to transformation of lives of the poor.