Islamic Finance in a Minute, episode 2: Murabaha
A sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments. (Sale-based contracts)
Transcript
- Amina
Hi! Islamic Finance in a Minute, episode 2. Today's term: Murabaha. Murabaha is probably the most common Islamic financing contract. How does it work?
- Yusuf
It is a sale at cost plus profit. The bank buys the asset, tells you what it paid, and sells it to you at that cost plus a margin you both agree, usually payable in instalments.
- Amina
So how is that different from a loan with interest? The numbers can look similar.
- Yusuf
The difference is ownership and risk. The bank must actually own the asset and carry its risk before it sells to you. And once the price is agreed, it does not grow if you pay late.
- Amina
What does that mean for someone building the system behind it?
- Yusuf
Your workflow needs a purchase step, evidence of ownership and a separate sale step, in the right order. If the sale is recorded before the bank owns the asset, the structure breaks.
- Amina
The full definition and related terms are in the IslamicOpenFinance™ glossary. Our voices were made with AI; see you tomorrow!