What is Murabaha Financing?

Islamic banking and financial activities are bound by a very specific ethical and religious code. Generally speaking, Islamic economic specialists advise their clients to use profit/loss sharing modes, while avoiding extensive use of other modes like murabaha. To succeed in the sector, it is of critical important to build a strong understanding of every key concept and rule pertinent to Islamic financial law. Murabaha and musawamah concerns the disclosure or otherwise of the cost price by the seller during a transaction. Though an initially complex concept to grasp, the basic principles of murabaha and Musawamah are in fact relatively easy to pick up.

This advanced tutorial has been designed for anyone with an interest in Islamic banking and financial activities in general. Explore bai‘ murabaha in classical literature, the need for murabaha, specific conditions of murabaha, bai‘ murabaha and credit sale (murabaha–mu’ajjal). Additional sub-topics introduced include possible structures of murabaha, direct trading by bank management, bank purchases through a third party/agent, murabaha through the client as agent, murabaha to purchase order (MPO), pre-promise stage – facility approval, purchase requisition, acquisition of title and possession of the asset, rollover in murabaham, commodity murabaha, musawamah (bargaining on price) and many more besides.