An Islamic financing contract where the seller (often a bank) purchases an item at the request of a buyer and then sells it to the buyer at a cost plus an agreed profit margin. The buyer can pay this price immediately or in installments.

Let’s take a look at Islamic finance and banking and how the process works. 

Allah permits trade but prohibits riba (interest) and gharar (excessive uncertainty):

“But Allah has permitted trade and forbidden riba.”

This verse establishes the permissibility of buying and selling (trade), which includes Murabahah (a transparent, cost-plus sale).
(Quran, Surah Al-Baqarah 2:275)

The Prophet Muhammad (ﷺ) approved of profit-based sales as long as the terms are clear:

“The Muslims must abide by their conditions, except a condition that permits what is forbidden or forbids what is permissible.”
(Sunan Ibn Majah, 2351)

This Hadith supports Murabahah because it requires full disclosure of cost and profit, ensuring transparency.

Scholarly Consensus (Ijma’)

Classical scholars like Imam Malik, Imam Shafi’i, and Imam Ahmad recognized Murabahah as a valid sale. Modern Islamic financial institutions (AAOIFI, Bank Negara Malaysia, etc.) have standardized Murabahah contracts.

Murabahah is one of the most popular and widely used financing methods in Islamic banking. It is based on a simple and transparent agreement between the bank and the customer, where the bank first buys an item requested by the customer and then sells it to them at a marked-up price. The key feature of this contract is that both the cost price and the profit margin are disclosed openly to the customer, making it a trustworthy and transparent transaction.

What makes Murabahah unique is that it is structured as a trade transaction rather than an interest-based loan. The bank is not simply lending money for the item; it is acting as a seller. The price, including the profit margin, is clearly stated from the beginning, making the agreement completely transparent. There are no hidden charges, and both parties are fully aware of the cost and the terms of repayment. Importantly, the bank must first own the item before selling it, ensuring that the transaction is linked to a real, tangible asset.

Murabahah is used extensively in many areas of financing, including housing, vehicles, equipment, and even trade financing for businesses. Its appeal lies in its simplicity, its compliance with Shariah principles, and its ability to provide a fair and ethical means of financing that benefits both the bank and the customer. By focusing on actual trade rather than charging interest, Murabahah promotes trust, transparency, and a more balanced financial relationship between the bank and its customers.

 Further Quranic and Hadith Support for Murabahah

Quranic Basis for Transparency in Trade.

Allah commands fairness in business dealings:

“Give full measure and do not cheat, and weigh with an even balance.”

(Quran, Surah Ash-Shu’ara 26:181-182)

This reinforces the Murabahah requirement of disclosing cost and profit. Hadith on permissibly of Deferred Payment Sales. The Prophet (ﷺ) allowed sales with delayed payment:

 “Whoever sells a product on deferred payment should clearly fix the amount and due date.”

(Sahih Bukhari, 2086)

This justifies Murabahah’s installment payment structure. Prohibition of Riba (Interest) in Loans vs. Permissibly of Trade Profit. The Quran distinguishes between halal profit (trade) and haram riba:

 “Whatever you pay as riba to increase people’s wealth does not increase with Allah. But whatever you give in charity, seeking Allah’s pleasure, will be multiplied manifold.”

(Quran, Surah Ar-Rum 30:39)

Murabahah is rooted in Islamic financial ethics. It is designed to adhere to the principles of Shariah, which forbid charging interest (riba) or engaging in speculative transactions (gharar). Instead, it operates as a trade agreement where an actual, tangible item is exchanged between parties.

Cost Transparency

One of the core benefits of Murabahah is its transparency. The bank discloses the original cost of the item, as well as the exact profit margin added. This allows the customer to understand precisely how the total price is calculated, building trust and promoting fairness.

Murabahah’s markup is profit from trade, not interest.

Key Conditions to Ensure Shariah Compliance for Murabahah:

1. Asset must exist and be owned by the seller before sale (no selling what one does not own).
2. Full disclosure of cost and profit margin (no hidden charges).
3. No penalty for late payment unless due to deliberate default (to avoid riba).

 Ownership and Risk

The bank assumes a crucial role by purchasing and owning the item first, which means it takes on the associated risks until it is sold to the customer. This feature distinguishes Murabahah from a traditional loan and emphasizes that the transaction is based on an actual sale.

 Flexible Payment Terms

Customers can settle the total price of the Murabahah agreement immediately or in installments over an agreed period. This structure provides financial convenience and planning benefits, making Murabahah suitable for both individuals and businesses.

 Clear Agreement

Each Murabahah contract clearly outlines the cost price, the bank’s profit margin, the repayment structure, and any conditions related to delays or early payments. This ensures that both parties have a mutual understanding and agreement from the outset.

Common Applications

Murabahah is used extensively across various sectors, making it one of the most popular modes of financing in the Islamic banking industry. It is commonly used for:

• Home financing
• Automobile financing
• Equipment and machinery acquisition
• Trade goods financing

Murabahah plays a pivotal role in the global Islamic finance industry, making it possible for businesses and individuals to obtain financing in a way that is aligned with religious and ethical values. Its growing popularity demonstrates its practicality and appeal across diverse markets and industries.

Differences Between Murabahah and Mudarabah

Murabahah (Cost-Plus Sale):

• A trade transaction where the bank buys an item and then sells it to the customer with an agreed profit margin.
• The bank owns the item first, takes the risk of possession, and then delivers it to the customer.
• The profit is fixed and agreed upon upfront, making the cost completely transparent.
• Commonly used for financing goods like cars, equipment, or homes.

Mudarabah (Profit-Sharing Partnership):

• An investment contract where one party (the bank) provides capital, and the other party (the customer) provides management or expertise for a business activity.
• Profits are shared between the bank and the entrepreneur based on an agreed ratio, while losses are borne by the bank (unless caused by the entrepreneur’s negligence).
• The bank acts as a silent partner and doesn’t involve itself in the daily operations of the business.
• Commonly used for investment or financing ventures, such as starting a new business or expanding an existing one.

Feature	Qard Hasan	Mudarabah
Type	Benevolent loan	Profit-sharing partnership
Purpose	Social help, charity	Business or investment
Return	No return or interest	Profit shared per agreement
Risk	Lender bears risk if borrower fails	Capital Provider bears financial loss
Nature	Pure loan (no profits/loss sharing)	Business partnership for profit

Sukuk: Islamic Bonds

Sukuk are investment certificates that give the holder a share in an underlying tangible asset, project, or service. Unlike conventional bonds (which are debt instruments), Sukuk holders have ownership rights and a claim on the returns generated by the asset.

• Used to raise long-term financing for projects or infrastructure.
• Returns to holders come from the profits or income generated by the underlying asset.
• Traded like bonds, making them suitable for both institutional and individual investors.

Feature	Mudarabah	Sukuk
Type	Profit-sharing partnership	Asset-backed investment certificates
Use Case	Business ventures, startups	Project financing, infrastructure
Risk & Profit	Profits shared, loss borne by capital provider	Returns from underlying assets
Role of Investor	Capital provider (no daily role)	Owner of a share in the asset
Liquidity	Not typically tradable	Traded in financial markets

Salam (Advance Sale Contract)

Salam is a sale agreement where the buyer pays the price upfront for goods that will be delivered later. This is common for agricultural products or goods that can be delivered in the future. The seller must deliver the goods as agreed.

• Use case for agriculture, commodity financing.
• Profit or Loss on the seller bears the risk until delivery.
• Nature a forward sale contract.

Feature	Mudarabah	Salam
Type	Profit-sharing partnership	Advance sale contract
Payment Timing	Capital invested upfront	Payment made upfront
Delivery	Business generates returns over time	Goods delivered later
Risk	Capital provider bears loss	Seller bears risk until delivery
Purpose	Business or project financing	Commodity financing

Ijarah (Leasing/Rental):

Ijarah is an agreement where one party (lessor) allows another party (lessee) to use an asset (e.g., equipment, property, vehicle) in return for regular rental payments. The ownership of the asset remains with the lessor, and the lessee only has the right to use it for an agreed period.

• Focus in usage of an asset, not profit generation
• Nature on leasing agreement
• Use case on property rental, equipment lease, vehicle lease
• Risk on owner (lessor) bears risk related to the asset itself

Feature	Mudarabah	Ijarah
Type	Profit-sharing partnership	Lease or rental agreement
What is Offered?	Capital for business	Usage of an asset
Risk Owner	Capital Provider (loss in business)	Owner of the asset (damage, etc.)
Profit/Return	Profit-sharing agreement	Fixed rental payments
Purpose	Business or investment financing	Asset usage or renting

Musharakah (Joint Partnership):

Musharakah is a partnership where all parties contribute both capital and effort (or one party may contribute only capital). Profits are shared based on an agreed ratio, and losses are shared in proportion to each party’s investment.

• Nature in joint investment and management
• Risk on shared loss based on investment contribution
• Use case for joint ventures, co-ownership of assets or businesses

Feature	Mudarabah	Musharakah
Capital	Capital from one party	Capital from all parties
Management	Done by the entrepreneur	Done by one or more partners
Profit	Shared based on agreement	Shared based on agreement
Loss	Borne by capital provider only	Shared based on investment ratio
Nature	Capital + Management partnership	Capital + Capital + Management partnership

Istisna’ (Manufacturing/Construction Contract):

Istisna’ is an agreement where a buyer orders a manufacturer or contractor to produce a specific item or build a project. The price and specifications are agreed upon in advance, and payments can be made in installments or upon delivery.

• Nature for sale agreement for an item/project to be manufactured
• Use case for construction projects, custom manufacturing, equipment production
• Risk on manufacturer is responsible until the item is delivered

Feature	Mudarabah	Istisna’
Type	Profit-sharing partnership	Sale contract for manufacture/construction
Parties Involved	Capital Provider & Entrepreneur	Buyer & Manufacturer/Contractor
What is Exchanged?	Capital for business activity	An item or project to be built
Risk	Capital Provider bears financial loss	Manufacturer bears production risk until delivery
Purpose	Fund and operate a business or project	Build or manufacture an item or structure

Qard Hasan (Benevolent Loan):

Qard Hasan is an interest-free loan granted as an act of kindness or social responsibility. The borrower is required to repay only the exact amount borrowed (without any interest or profit).

• Nature for charitable loan agreement
• Purpose for helping people in need or supporting a social cause
• Risk on lender bears the risk if the borrower is unable to repay

Feature	Mudarabah	Qard Hasan
Type	Profit-sharing partnership	Benevolent loan
Objective	To make a profit from a business or investment	To help someone in need, with no profit expected
Risk	Capital provider bears financial risk	Lender bears risk if borrower cannot repay
Return	Profits shared as agreed	No return or interest charged
Use Case	Business ventures, investment	Social or charitable financing

Calculation and Banks Profit From Murabahah

1. Buying the Item First

Formula: Selling Price = Cost Price+(Cost Price×Profit Margin)Selling Price=Cost Price+(Cost Price×Profit Margin)

• The bank buys the required item (e.g., a car, equipment, or commodity) from the supplier at its cost price.

2. Adding a Profit Markup

• After purchasing, the bank sells the item to the customer with an added profit margin.
• This markup is agreed upon in advance, making it completely transparent.

3. Fixed Sale Price

• The bank’s selling price = Cost Price + Profit Markup
• This price is fixed for the customer regardless of fluctuations in market interest rates.

4. Customer Payment

• The customer can pay the bank in installments over an agreed period, making it convenient for both parties.

• Example: Cost of House (Bank’s Purchase Price): RM500,000

• Agreed Profit Margin (10%): RM50,000
• Selling Price to Customer: RM550,000
• Installment Payment (5 Years, Monthly):
• Monthly Payment=Selling Price / Number of Months=550,000 / 60=RM9,166.67/month

Views of Muslim Scholars Middle East and Malaysia

Middle East

In the Middle Eastern context, scholars like those from Al‑Azhar (Egypt), the International Fiqh Academy (Saudi Arabia), and other Shariah boards emphasize:

• Qard Hasan is highly regarded as an act of charity (ṣadaqah) that strengthens social solidarity (takaful) within the community.
  • It is considered one of the most virtuous loans because it promotes fairness, eliminates exploitation, and supports those in financial need.
  • Scholars agree it must remain completely free of interest or any hidden benefits, making it purely altruistic.
• Mudarabah is viewed as a core business partnership model in line with the Prophet’s traditions.
  • The focus is on trust (amanah) and equity between parties, making it ideal for investment and economic growth.
  • Middle Eastern scholars often relate it to the classical juristic works that emphasize loss-sharing and risk-bearing as crucial elements of the agreement.

Malaysia

In Malaysia, scholars and Shariah advisory boards (such as those of Bank Negara Malaysia and the SC Malaysia) also emphasize:

• Qard Hasan as an important social finance tool.
  • They consider it highly relevant for microfinancing and poverty alleviation, aligning it with national inclusive financial policies and the Maqasid al‑Shariah (objectives of Shariah).
  • The emphasis is on making financing accessible and affordable for underserved communities.
• Mudarabah is highly promoted as a viable investment and financing tool in Malaysia’s modern Islamic banking sector.
  • Scholars here have developed comprehensive guidelines and standards for its application in areas such as investment accounts, crowdfunding, and startups.
  • Greater focus is placed on its role in creating a profit-sharing economic model that supports entrepreneurship and balanced risk-sharing.

Key Rules:

1. Profit margin must be fixed upfront (no variable interest).
2. Late fees (if any) cannot compound and must be donated.

View	Arab Scholars	Malaysian Scholars
Qard Hasan	Pure charitable loan, highly valued for social solidarity	Social financing for poverty alleviation, national financial inclusion
Mudarabah	Profit-sharing partnership rooted in classical Fiqh (trusted model for commerce)	Modern investment tool with strong regulations (investment accounts, crowdfunding)
Focus	Maintaining Shariah authenticity and trust between parties	Strong institutional framework and focus on economic growth and exclusivity

Controversial Areas & Shariah Compliance of Murabahah

Although Murabahah is one of the most popular modes of financing in Islamic banking, it has some controversial areas that scholars and practitioners have debated:

Similarity to Conventional Loans

Issue:
Some critics argue that Murabahah sometimes looks too much like a traditional loan with interest, because it involves a cost price and a fixed markup that can resemble interest payments.

Shariah Response:
Shariah scholars emphasize that Murabahah is a trade transaction, not a loan. The bank must take actual possession of the commodity before selling it to the customer, making it a genuine sale.

Risk and Ownership

Issue:
In some cases, the bank may try to minimize its risk by making the customer bear the responsibility for the commodity from the very beginning, before it is sold.

Shariah Response:
For Murabahah to be valid, the bank must:

• Own the commodity,
• Bear its risk until the sale is executed,
• Not shift this risk prematurely to the customer.

Binding Promise vs. Sale Contract

Issue:
Some Murabahah agreements use a binding promise from the customer to buy the commodity, making it almost like a pre-arranged loan agreement.

Shariah Response:
Most scholars accept binding promises if:

• They are treated as a promise, not as an actual sale,
• The bank assumes risk and ownership until the actual sale takes place.

Markup Linked to Interest Rates

Issue:
Murabahah profits are sometimes calculated using the prevailing interest rate (LIBOR or KIBOR), making it seem like an interest-based transaction.

Shariah Response:
While using an interest rate as a benchmark is tolerated by some scholars for pricing convenience, the markup itself must be fixed and agreed upon at the time of sale — making it a price for goods, not interest.

But why Murabahah Is Still Considered Shariah‑Compliant?

• The bank assumes risk and ownership of the commodity.
• The transaction is a sale contract, making the profit legitimate.
• The agreement includes transparency, mutual consent, and disclosure of cost and profit margin.
• The transaction satisfies the fundamental conditions for a valid sale (bay’) in Shariah.

Differences in Murabahah Practice Between Malaysia, Middle East & Europe

Malaysia

Regulatory Framework:
Strong Shariah governance by institutions like Bank Negara Malaysia (BNM) and the Shariah Advisory Council (SAC). Murabahah is highly regulated and standardized.

Practice:

• Frequently used for retail financing (home financing, car financing).
• Incorporation of binding promises (Wa’d) allows seamless financing akin to conventional banking.
• Heavy use of documentation and disclosure for transparency.

Approach:
Innovative and flexible, making Murabahah competitive and aligned with global banking standards while still Shariah‑compliant.

Middle East

Regulatory Framework:
Varies between countries, with Shariah boards (such as in Saudi Arabia, Bahrain, and the UAE) setting standards. Influenced by classical Fiqh.

Practice:

• Murabahah is used extensively for trade finance, commodity financing, and corporate financing.
• Strong focus on the bank’s role in ownership and possession (more conservative approach).
• Greater scrutiny by Shariah boards for risk and commodity ownership.

Approach:
More traditional and cautious, focusing deeply on avoiding Riba and ensuring that every transaction closely mirrors the classical sale contract.

Europe

Regulatory Framework:
Islamic banking operates as a niche segment under general EU financial regulations. Products must balance Shariah compliance with local legal constraints.

Practice:

• Murabahah used for financing Muslim communities (home purchases, small business financing).
• Products tailored for compliance with EU regulations while obtaining Shariah approvals from external boards.
• Greater emphasis on transparency and aligning pricing with international standards.

Approach:
More adaptive and pragmatic, focusing on making Murabahah competitive with traditional loans while maintaining its Shariah identity.

Aspect	Malaysia	Middle East	Europe
Regulation	Strong central Shariah framework (BNM/SAC)	Shariah boards per bank/institution	EU regulations + external Shariah boards
Use Cases	Retail financing (home, car), corporate financing	Trade financing, commodity financing	Niche retail, SME financing
Approach	Innovative and standardized	Traditional, highly Shariah-focused	Adaptive and pragmatic
Documentation	Detailed and standardized	Highly scrutinized by Shariah boards	Must balance Shariah compliance and EU laws
Shariah Oversight	Strong national Shariah Council	Individual bank-level boards	International Shariah boards / scholars

What do you about this product, leave your comment below.

1. 

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2. 

   This is awesome explanation

3. 

   saya sangat setuju , tetapi ada beberapa perkara yang perlu dijelaskan