Murabaha is one of the most commonly used modes of financing by Islamic Banks and financial institutions. Definition Murabaha is a particular kind of sale where the seller expressly mentions the cost of the commodity purchased, and sells it to another person by adding some profit thereon. Thus, Murabaha is not a loan given on interest; it is a sale of a commodity for cash/deferred price. The Bai’ Murabaha involves purchase of a commodity by a bank on behalf of a client and its resale to the latter on cost-plus-profit basis. Under this arrangement, the bank discloses its cost and profit margin to the client. In other words rather than advancing money to a borrower, the bank will buy the goods from a third party and sell those goods to the customer at an agreed price. Difference between Murabaha and Sale A simple sale in Arabic is called Musawamah - a sale without disclosing or referring to the cost of goods sold. However when the cost price is disclosed to the client, it is called Murabaha . A simple Murabaha is one where there is cash payment and MurabahaMuajjal is one on deferred payment basis. Basic Rules for Murabaha Following are the rules governing a Murabahah transaction: The subject of sale must exist at the time of the sale. Thus anything that does not exist at the time of sale cannot be sold as this makes the contract void. The subject matter should be in the ownership of the seller at the time of sale. If the seller sells something that he himself has not acquired, then the sale becomes void. The subject of sale must be in physical or constructive possession of the seller when it is sold to another person. Constructive possession means a situation where the owner has not taken physical delivery of the commodity yet it has come into his control and all rights and liabilities of the commodity are passed on to him including the risk of its destruction. The sale must be instant and absolute. Thus a sale attributed to a future date or a sale contingent on a future event is void. The subject matter should be a property having value in the eyes of Shari’a. The subject of sale should not be a thing used for an un-Islamic purpose. The subject of sale must be specifically known and identified to the buyer. For Example, ‘A’ owner of an apartment building says to ‘B’ that he will sell an apartment to ‘B’. Now the sale is void because the apartment to be sold is not specifically mentioned or pointed to the buyer. The delivery of the sold commodity to the buyer must be certain and should not depend on a contingency or chance. The certainty of price is a necessary condition for the validity of the sale. If the price is uncertain, the sale is void. The sale must be unconditional. A conditional sale is invalid unless the condition is recognized as a part of the transaction according to the usage of the trade. Download Presentation