Definition of Murabaha:
In a murabaha contract of sale, a client petitions a bank to purchase an item on their behalf. Complying with the client's request, the bank establishes a contract setting the cost and profit for the item, with repayment typically in installments. Because a set fee is charged rather than riba (interest), this type of loan is legal in Islamic countries. Islamic banks are prohibited from charging interest on loans according to the religious tenet that money is only a medium of exchange and has no inherent value; so banks must charge a flat fee for continuing daily operations. .
Murabaha, also referred to as cost-plus financing, is an Islamic financing structure in which the seller and buyer agree to the cost and markup of an asset. The markup takes place of interest, which is illegal in Islamic law. As such, murabaha is not an interest-bearing loan (qardh ribawi) but is an acceptable form of credit sale under Islamic law. As with a rent-to-own arrangement, the purchaser does not become the true owner until the loan is fully paid.
An Islamic type of financial transaction in which a person with property/an asset to sell will rent/lease it to another interested buyer at a fully disclosed rate of profit. This is similar to a rent-to-own situation in which the owner maintains full property rights over the asset until the buyer has paid off the note for the asset in full.
How to use Murabaha in a sentence?
- Murabaha is also referred to as cost-plus financing because it includes a profit markup in the transaction rather than interest.
- In Islamic finance, murabaha financing is used in place of loans.
- A seller and buyer agree to the cost and the markup, which are then paid in installments.
- Interest-bearing loans are prohibited under Islam’s Sharia law.
Meaning of Murabaha & Murabaha Definition