Pioneer Paint and Chemicals Company (PPC Co.) wants to extend their existing manufacturing plant, for which they approached Pasban Islamic Bank for financing. Following are the details of financing.
1. PPC Co. needs to extend their existing manufacturing plant, for which they gave a financing request to Pasban Islamic Bank for purchasing machinery, chemicals and construction of additional warehouse.
2. Pasban Islamic Bank signed Murabaha agreement with PPC Co. and asked it to provide some sort of security against this financing to complete Murabaha transaction. PPC Co. provided the personal guarantee of a reputable businessman and through this the Murabaha Sale transaction was concluded.
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3. Material purchasing process was twofold. Regarding the chemicals, Pasban Islamic Bank purchased the chemicals itself, instead of appointing PPC Co. as its agent. Whereas, for purchasing the machinery, Pasban Islamic Bank appointed PPC Co. as its agent who purchased machinery from a non-Muslim used machinery importer. As far as the construction of additional warehouse? was concerned, Pasban Islamic Bank again made PPC Co. as its agent, as the Bank did not have expertise in construction.
4. PPC Co. purchased the material and instead of delivering it to Pasban Islamic Bank, PPC Co. informed the bank that they have acquired the material and bank approved this act.
5. During transportation some of the material was destroyed regarding which PPC Co. wanted replacement, with the understanding that PPC Co. has not yet paid for the material so the loss is to be borne by the bank.
6. Duration of repayment was 4 years with equal monthly installments. After second year it was becoming difficult for PPC Co. to repay the amount, so it requested the bank to increase the time period from 4 to 6 years. The bank eventually agreed to increase the time period by keeping the monthly installment amount same as before.
Evaluate the above-mentioned procedure of Murabaha given in 6 points. Explain which transaction is correct and which is not correct, according to the correct procedure of Murabaha. Provide proper justification for your answer.