Murabaha is a cost-plus sale transaction in Islamic finance where the seller explicitly discloses the cost of acquiring an asset and adds an agreed-upon profit margin. The buyer knows both the cost and the markup, making the transaction transparent. This structure is widely used in Islamic banking as an alternative to interest-bearing loans.
In practice, a Murabaha transaction typically works as follows: a customer identifies an asset they wish to purchase (such as a car or equipment). The bank purchases the asset from the supplier and then sells it to the customer at the original cost plus a disclosed profit margin. The customer may pay in installments, but the total price is fixed at the time of sale — there is no additional charge for late payment as there would be with interest.
While Murabaha is the most common Islamic financing structure globally, scholars have noted the importance of ensuring it is not merely a repackaging of interest-based lending. The key requirements are that the bank must actually take ownership and risk of the asset (even briefly), the cost and profit must be transparently disclosed, and the arrangement must involve a genuine sale rather than a disguised loan.
Related Terms
Riba(ربا)
Interest or usury — any guaranteed, predetermined return on a loan or investment. Strictly prohibited in Islamic finance.
Mudarabah(مضاربة)
A profit-sharing partnership where one party provides capital and the other provides expertise. Losses are borne by the capital provider only.
Musharakah(مشاركة)
A joint partnership where all parties contribute capital and share profits and losses according to their investment ratio.
Sukuk(صكوك)
Islamic financial certificates, often called "Islamic bonds," that represent ownership in an underlying asset rather than a debt obligation.
Related Tools
Calculate Your Zakat Now
Use our multi-madhab Zakat calculator with live Nisab prices. Supports all 5 schools of thought with madhab-specific rules.
Start CalculatingMizaan provides educational guidance based on established fiqh. This is not a fatwa service. For personal rulings, consult a qualified scholar.