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Sale-based contracts

Murabaha

A sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.

Murabaha is a sale in which the seller discloses the cost of the asset and sells it at that cost plus an agreed profit. The IFSB defines it as a sale of a specified asset to a customer at cost plus an agreed margin, which can be preceded by the customer's promise to purchase. Bank Negara Malaysia's policy document stresses that the seller must secure ownership of the asset and assume its risk before the murabaha contract is executed. The price, once agreed, does not increase when payment is deferred.

Sources

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

Related terms

Murabaha to the purchase ordererMurabaha in which the customer first asks the bank to buy an asset and promises to buy it from the bank once acquired.Bay al-muajjal (deferred-payment sale)A sale in which the goods are delivered now and the price is paid later, in one sum or in instalments.MusawamahA negotiated sale in which the seller does not disclose its cost; the price is simply agreed between the parties.Hamish jiddiyyah (security deposit)A deposit paid by a customer to secure a promise to buy; it covers only actual loss if the promise is broken.Deferred profitThe profit on a deferred-payment sale that is recognised over the payment period rather than all at once at the sale date.