A murabaha transaction that involves an Islamic bank or financial institution purchasing shares through a client as agent and reselling them on the basis of murabaha to its willing clients. This form of murabaha is valid from a shari’a perspective because the object of sale (the shares) represents tangible assets belonging to joint stock companies. However, a set of screening criteria and sale-related conditions must be adhered to for such a murabaha transaction to be completely shari’a-compatible. The underlying shares that would be sold on a murabaha basis should not be of a company owned or controlled by the bank (e.g., subsidiary, sister company, etc), lest the deal turns into a buy-back transaction (which shari’a prohibits).

A purchasing bank should make payment directly to its brokers and the client should not be appointed agent for purchasing the shares. The bank, also, should take full possession of the shares whether actually or through a central depository. With this done, the bank can sell them to clients on a murabaha basis, i.e., for their purchase price plus a given mark-up. If title transfer requires more than a few days then the bank cannot dispose of the shares until settlement completes. Nevertheless, for settlement periods of 3 business days and less, a bank is still exposed to the price risk (the risk that arises from a significant change in share prices between the date of purchase and the date of delivery).