Murabaha Agreement (Nigeria)

A Murabaha Agreement in Nigeria governs the relationship between the parties by fixing what each must do.

The Central Bank of Nigeria issued the Framework for the Regulation and Supervision of Non-Interest Financial Institutions in 2011, establishing licensing categories for non-interest banks operating on Islamic finance principles. Jaiz Bank Plc, licensed as a full-fledged non-interest bank in 2012, and Sterling Bank's Alternative Finance window are the primary institutions offering Murabaha financing in Nigeria as at 2024. The CBN's approval of the first non-interest bank licence in Nigeria followed the Securities and Exchange Commission (SEC) of Nigeria's 2013 Rules on Islamic Finance.

In a Murabaha structure, the financier first purchases the identified asset (goods, equipment, raw materials, or commodities) from a third-party supplier at the purchase price, then sells the asset to the customer at the purchase price plus a disclosed profit margin. The customer pays the total Murabaha price in instalments. Unlike a conventional loan, no interest accrues on outstanding instalments; the profit margin is fixed at the outset and does not increase even if the customer delays payment.

A Murabaha Agreement in Nigeria must be reviewed and approved by the institution's Sharia Advisory Council before execution, as required under the CBN NIFI Regulatory Framework 2011. The Sharia Advisory Council's certificate of compliance (Sharia compliance certificate) should be referenced in the agreement. The Financial Regulation Advisory Council of Experts (FRACE), established by the CBN under the NIFI Framework, provides federal-level Sharia compliance oversight.

For tax purposes, the Federal Inland Revenue Service (FIRS) has issued guidelines under the Finance Act 2021 treating Murabaha profit margin payments as equivalent to interest for withholding tax purposes under the Companies Income Tax Act (CITA) Cap C21, LFN 2004, at a rate of 10%.

The legal framework governing the Murabaha Agreement (Nigeria) in Nigeria draws on several key statutes and regulatory bodies. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Parties executing a Murabaha Agreement (Nigeria) in Nigeria should confirm the document reflects current law, including any amendments enacted since the original drafting date. The CBN Guidelines on Non-Interest Financial Institutions (NIFI) sets the foundational requirements.

A Murabaha Agreement in Nigeria is required whenever an individual or business seeks asset financing from a CBN-licensed Non-Interest Financial Institution without incurring interest (riba).

A Murabaha Agreement is needed when a Muslim business owner in northern Nigeria requires financing to purchase goods, raw materials, or equipment for a manufacturing or trading business, and wishes to structure the transaction in compliance with Islamic finance principles as recognised by the CBN NIFI Regulatory Framework 2011.

A Murabaha Agreement is required when Jaiz Bank or another CBN-licensed NIFI finances the purchase of consumer goods — motor vehicles, household appliances, or electronics — for a retail customer. The bank first purchases the goods from the supplier, then sells them to the customer at cost plus profit margin under the Murabaha structure.

A Murabaha Agreement is needed when a company engaged in commodity trading seeks working capital financing from a non-interest bank. Commodity Murabaha (using traded commodities as the underlying asset) is a common structure for short-term working capital among corporate clients of Jaiz Bank.

A Murabaha Agreement is required when a real estate developer or property buyer seeks to finance property acquisition through a non-interest bank under an asset-backed structure. For property transactions, the Murabaha agreement operates alongside the governor's consent requirements under Section 22 of the Land Use Act 1978.

A Murabaha Agreement is needed when a government ministry, department, or agency (MDA) procures goods or equipment from a supplier through a non-interest financing structure, as permitted under the Public Procurement Act 2007 and CBN NIFI guidelines for government-linked transactions.

Parties in Nigeria should prepare a Murabaha Agreement (Nigeria) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A valid Murabaha Agreement in Nigeria must contain the following essential elements to comply with CBN NIFI regulations and Sharia principles.

Parties: Full legal names, addresses, and CAC registration numbers (for corporate parties) of the financier (NIFI) and the customer. The financier's CBN NIFI licence number must be stated to confirm regulatory authorisation.

Asset Description: A precise description of the asset to be purchased and sold under the Murabaha structure, including make, model, specifications, and quantity. The asset must be a Sharia-compliant physical asset; Murabaha cannot be used for financing money with money.

Purchase Price: The price at which the financier purchases the asset from the third-party supplier, with documentary evidence (invoice, purchase receipt) attached as a schedule.

Profit Margin and Murabaha Price: The agreed profit margin charged by the financier, stated in NGN (not as a percentage to avoid resemblance to interest). The total Murabaha price (purchase price plus profit margin) must be disclosed in full before execution.

Repayment Schedule: The instalment amounts, due dates, and total repayment period. In a Murabaha structure, the profit margin does not increase upon late payment; however, the agreement may include a charitable penalty (paid to a charity designated by the Sharia Advisory Council, not retained by the financier) to deter late payment without constituting riba.

Sharia Compliance Certificate: Reference to the Sharia Advisory Council's certificate of compliance with the institution's Sharia Advisory Board approval, as required by the CBN NIFI Regulatory Framework 2011.

Title and Risk: Confirmation that title to the asset passes from the supplier to the financier, and from the financier to the customer, at the point of delivery. Under Murabaha principles, the financier must bear title risk (however briefly) between the two sale transactions.

Governing Law: Confirmation that the agreement is governed by Nigerian law and by Sharia principles, with reference to the CBN Financial Regulation Advisory Council of Experts (FRACE) as the supreme Sharia compliance authority for CBN-licensed NIFIs.

Additional compliance elements for a Murabaha Agreement (Nigeria) used in Nigeria include: Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Forms-legal.com provides this template as a starting point for Nigeria-compliant documentation.