Arabic (مرابحة) for an Islamic mode of trading and financing which constitutes an absolute sale, i.e. the sale of “asset for price”. More specifically, Murabaha refers to the selling of a commodity for a given price plus a certain profit margin as agreed upon by the seller and buyer. The profit margin can either be a percentage of the purchase price or a lump sum amount.
Murabaha belongs to “amana sales” (which include in addition to murabaha: tawlia sale and discount sale) as the seller is ethically and professionally required to disclose the actual price of the commodity, that is, its actual cost on the seller before adding thereto a specific markup. The price in murabaha transactions can be deferred, and therefore is paid in installments over time to maturity, in the case the buyer needs access to credit, or immediate, if the buyer seeks only the seller’s expertise in securing a specific commodity.
Murabaha is the practical opposite of salam sale, as the price in the latter is paid upfront while delivery is deferred for a future date. Typically, murabaha is classified as “ordinary murabaha” and “murabaha to the purchase orderer”.
Murabaha is also known as a cost-plus sale.
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