Murabaha is one of the most widely used contracts in modern Islamic banking. It is a sale-based financing arrangement in which a financial institution purchases an asset requested by a customer and subsequently sells it to the customer at an agreed markup.
Unlike conventional lending, the transaction is structured as a sale rather than a loan, and the profit earned by the institution is derived from trade rather than interest.
Murabaha is commonly used for home financing, vehicle purchases, equipment acquisition, and trade finance.
The contract must satisfy specific Shariah requirements, including ownership of the asset by the seller before resale, transparency regarding costs and profits, and the absence of prohibited uncertainty or interest-based elements.
While Murabaha is widely accepted by contemporary Islamic financial institutions, scholars continue to discuss its implementation and its relationship to the broader objectives of Islamic finance.