Murabaha (also spelled murabahah) is a shari’a compatible mode of debt financing which involves the sale of a commodity mostly for a deferred price. The two parties to the contract are: a financier (usually an Islamic bank) and a client.
In its business form, murabaha is initiated when a potential buyer orders a commodity to pay for it with a specified mark-up (profit or ribh). The seller accepts and accordingly procures the commodity. Once the commodity is legally possessed by the seller, the buyer is asked to purchase it and takes delivery. As such, the commodity must exist at the time of contract, and must be owned by the seller at that time whether via constructive (qabd hukmi) or physical possession (qabd fe’eli). Furthermore, quality and quantity must be defined in clear-cut terms, and the exact date and method of delivery must also be specified.
Assets such as commodities, consumer goods, manufacturing and production materials, property, equipment and fixtures, and other tangible and non-monetary assets are valid to underlie (i.e., be underlyings in) murabaha sale provided that these assets are not forbidden in the Quran and Sunnah such as ribawi items that are naturally used as a medium of exchange (modern money, gold, silver, etc) and other ribawi commodities, alcohol (khamr and its derivatives), non-halal meat and food (pork, meat of animals not slaughtered according to shari’a, etc). Assets to be purchased on the basis of murabaha shall be those already in existence, valid and can be exchanged in an enforceable sale. Assets under manufacturing or construction are not eligible for murabaha sale.
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