This document provides an introduction and overview of Murabaha, an Islamic financing structure. It defines Murabaha as a sale where the seller discloses the cost of goods to the buyer and adds a known profit. The key features are that the asset being sold must exist, the sale price must be determined, and the sale must be unconditional. It then outlines the basic 6 step process for Murabaha financing between a bank and client, where the client acts as an agent to purchase goods on the bank's behalf that are then sold to the client. Finally, it lists some common applications of Murabaha for meeting working capital needs, long-term purchases, and trade finance.

1. Introduction to Murabaha
Version 2.0
Release Date:
Jamad ul Thani 31, 1430 H
June 25, 2009
Prepared By:
Product Development and Shariah
Compliance Department

2. • Murabaha is a particular kind of sale and not a
financing in its origin.
• Where the transaction is done on a “cost plus
profit” basis i.e. the seller discloses the cost to the
buyer and adds a certain profit to it to arrive at the
final selling price.
Definition of Murabaha

3. • The distinguishing feature of Murabaha from
ordinary sale is:
- The seller discloses the cost to the buyer.
- And a known profit is added.
Murabaha

4. Basic rules for Murabaha financing:
• Asset to be sold must exist.
• Sale price should be determined.
• Sale must be unconditional.
• Assets to be sold:
a) Should not be used for un-Islamic purpose.
b) Should be in ownership of the seller at the
time of sale; physical or constructive.
Murabaha

5. Step by step Murabaha Financing

6. 1. Client and bank sign an agreement to
enter into Murabaha (MMFA).
Agreement to
Murabaha
Bank Client
Murabaha

7. 2. Client appointed as agent to purchase goods
on bank’s behalf
Agency
Agreement
Agreement to
Murabaha
Bank Client
Murabaha

8. 3. Bank gives money to agent/supplier for
purchase of goods.
Disbursement to the agent or supplier
Agency
Agreement
Supplie
r
Agreement to
Murabaha
Bank Client
Murabaha

9. 4. The agent takes possession of goods on bank’s
behalf.
Transfer of Risk
Delivery
of goodsVendor
Bank Agent
Murabaha

10. 5(a). Client makes an offer to purchase the
goods from bank through a declaration.
Offer to
purchase
Bank Client
Murabaha

11. 5(b). Bank accepts the offer and sale is
concluded.
Murabaha Agreement
+
Transfer of Title
Bank Client
Murabaha

12. 6. Client pays agreed price to bank according to
an agreed schedule. Usually on a deferred
payment basis (Bai Muajjal)
Payment of Price
Bank Client
Murabaha

13. Application of Murabaha

14. • Purchase of raw material; for meeting
working capital needs of trade and industry.
• Medium to long term requirements for
purchase of land, building and equipment.
• Trade finance products including imports,
exports and bill purchase.
Applications of Murabaha