FORGOT YOUR DETAILS?

MURABAHAH

COST PLUS FINANCING

MURABAHAH CONTRACT

This is the most common product in Shariah compliant trade finance. With murabahah products, buyers ask banks to import certain goods. The banks do this and then sell the goods to the buyers for a profit. In murabahah contracts, the bank typically uses its own capital to finance the letter of credit for such financing arrangements. In murabahah working capital products, firms are provided with working capital on a similar cost plus-profit basis.

MURABAHAH CONTRACT DETAILS

The term Murabahah is derived from the word al-ribh, which means an increase in capital. Murabahah is cost-plus financing and a sale transaction where the seller discloses the cost of the commodity and amount of profit charged. It should be noted that Murabahah is a sale transaction and not a loan that is given on Interest, which is considered riba (or excess). In a Murabahah agreement, the customer, who isn’t financially able to make such a purchase approaches the bank and signed a promise to purchase and request the bank to make a purchase of the certain identified asset which the customer has mentioned to the bank.

MURABAHAH PROCESS

01

CUSTOMER APPROACH THE BANK

The customers approach the bank to purchase a commodity or an asset
02

BANK APPOINTS AGENT

The bank appoints the customer as an agent to purchase the asset on its behalf. At this point, the bank will also disclose the price plus profit to the customer. The bank will have the ownership and risk of an asset at that time.
03

AGREED PROFIT

The bank will sell the same commodity to the customer on an agreed profit which will be paid in the future.
04

OWNERSHIP IS TRANSFERRED

The bank will transfer the ownership and risk to the customer upon close of the sale.

HOW MURABAHAH CONTRACT CAN HELP YOU

KEY BENEFITS OF A MURABAHAH CONTRACT

EASY PURCHASE

Purchasing raw materials, inventory, equipment, machinery, inventory by business organizations etc.

SHORT TERM

Asset financing, Import and Export Financing, Consumer goods financing, House Financing, Murabahah is used in various types of financing

NO PENALTY

No penalty can be charged in case of late payment.

Expert Advice

The above information provides beneficial knowledge about contracts in Islamic finance. The content is provided for information purposes only. For more details, please reach out to one of our Expert Today.

TALK TO OUR EXPERTS

Please fill this for and we'll get back to you as soon as possible!

TOP