MURABAHA-CONTEMPORARY BANKING TREND WITH LIMITED USAGE IN THE MACEDONIAN FINANCIAL SYSTEM

Abstract

Interest-free banking system also known as Islamic banking, represents a system, different from the conventional, with instruments and mechanisms which perform the same function as classic credit-saving instruments. An important feature that separates interest-free concept from standard banking is: to preserve the main Islamic principle, which is the exclusion of interest in every possible form. In that direction, Islamic bankers created instruments that fit the interest-free concept.Many of interest-free credit instruments, over the last years, are increasingly used also by commercial banks, especially trade-based instruments, of which the most widespread and most used is Murabaha. The philosophy of its functioning is the exclusion of interest and its replacement with trading-mode of operation so the bank will not approve classic loans that need to be repaid, upgraded with interest, as is the case with commercial loans. In contrast of that, the bank will buy the asset due to which costumers requires a loan, and then sells the same asset to the costumer with higher (mark-up) price. The price is known in advance and does not change until the end of contract. Thus, costumers are protected from the risk of changing interest rates, which otherwise can affect the amount of debt and their ability to repay, but also have greater foresight about total costs for the loan.The use is not limited only to Islamic banks. Murabaha is popular and can be found as a financial instrument also in commercial banks, beyond the borders of Islamic countries. However, the success in implementing such banking practices varies from state to state, due to a number of obstacles in the tax regulations. Especially, VAT (value added tax), which causes double taxation for Murabaha financial instrument.