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Murabaḥah, murabaḥa, or murâbaḥah (Arabic: مرابحة, derived from ribh Arabic: ربح, meaning profit) was originally a term of fiqh (Islamic jurisprudence) for a sales contract where the buyer and seller agree on the markup (profit) or "cost-plus" price[1] for the item(s) being sold.[2] In recent decades it has become a term for a very common form of Islamic (i.e., "shariah compliant") financing, where the price is marked up in exchange for allowing the buyer to pay over time—for example with monthly payments (a contract with deferred payment being known as bai-muajjal). Murabaha financing is similar to a rent-to-own arrangement in the non-Muslim world, with the intermediary (e.g., the lending bank) retaining ownership of the item being sold until the loan is paid in full.[3] There are also Islamic investment funds and sukuk (Islamic bonds) that use murabahah contracts.[4]
The purpose of murabaha is to finance a purchase without involving interest payments, which most Muslims (particularly most scholars) consider riba (usury) and thus haram (forbidden).[5] Murabaha has come to be "the most prevalent"[5] or "default" type of Islamic finance.[6]
A proper murâbaḥah transaction differs from conventional interest-charging loans in several ways. The buyer/borrower pays the seller/lender at an agreed-upon higher price; instead of interest charges, the seller/lender makes a religiously permissible "profit on the sale of goods".[5][7] The seller/financer must take actual possession of the good before selling it to the customer, and must assume "any liability from delivering defective goods".[8] Sources differ as to whether the seller is permitted to charge extra when payments are late,[9] with some authors stating any late fees ought to be donated to charity,[10][11][12] or not collected unless the buyer has "deliberately refused" to make a payment.[8] For the rate of markup, murabaha contracts "may openly use" riba interest rates such as LIBOR "as a benchmark", a practice approved of by the scholar Taqi Usmani.[13][Note 1]
Conservative scholars promoting Islamic finance consider murabaha to be a "transitory step" towards a "true profit-and-loss-sharing mode of financing",[16] and a "weak"[17] or "permissible but undesirable"[18] form of finance to be used where profit-and-loss-sharing is "not practicable."[16][19] Critics/skeptics complain/note that in practice most "murabaḥah" transactions are merely cash-flows between banks, brokers, and borrowers, with no buying or selling of commodities;[20] that the profit or markup is based on the prevailing interest rate used in haram lending by the non-Muslim world;[21] that "the financial outlook" of Islamic murabaha financing and conventional debt/loan financing is "the same",[22] as is most everything else besides the terminology used.[23]
- ^ Irfan, Harris (2015). Heaven's Bankers. Overlook Press. p. 135.
- ^ Usmani, Taqi (1998). An Introduction to Islamic Finance. Creative Commons Attribution-No Derivative Works 3.0. p. 65. Retrieved 4 August 2015.
- ^ "Murabaha". Investopedia. Retrieved 3 August 2015.
- ^ Jamaldeen, Islamic Finance For Dummies, 2012:188-9, 220-1
- ^ a b c Islamic Finance: Instruments and Markets. Bloomsbury Publishing. 2010. p. 131. ISBN 9781849300391. Retrieved 4 August 2015.
- ^ Irfan, Harris (2015). Heaven's Bankers. Overlook Press. p. 139.
- ^ "A Simple Introduction to Islamic Mortgages". 14 May 2015.
- ^ a b Cite error: The named reference
IMF-2015-8was invoked but never defined (see the help page). - ^ "Late Payment Charges for Islamic Financial Institutions". Islamic Bankers : Resource Centre. 11 June 2014. Retrieved 9 July 2016.
- ^ Visser, Hans, ed. (January 2009). "4.4 Islamic Contract Law". Islamic Finance: Principles and Practice. Edward Elgar. p. 77. ISBN 9781848449473. Retrieved 9 July 2016.
The prevalent position, however, seems to be that creditors may impose penalties for late payments, which have to be donated, whether by the creditor or directly by the client, to a charity, but a flat fee to be paid to the creditor as a recompense for the cost of collection is also acceptable to many fuqaha.
- ^ Kettell, Brian (2011). The Islamic Banking and Finance Workbook: Step-by-Step Exercises to help you ... Wiley. p. 38. ISBN 9781119990628. Retrieved 9 July 2016.
The bank can only impose penalties for late payment by agreeing to `purify` them by donating them to charity.
- ^ "FAQs and Ask a Question. Is it permissible for an Islamic bank to impose penalty for late payment?". al-Yusr. Retrieved 9 July 2016.
- ^ Visser, Hans (2013). Islamic Finance: Principles and Practice (Second ed.). Elgar Publishing. p. 66. ISBN 9781781001745. Retrieved 7 December 2016.
- ^ Jamaldeen, Islamic Finance For Dummies, 2012:156
- ^ "Thomson Reuters' "Islamic Interbank Benchmark Rate" -- IIBR. Is it really an important Step Forward for Islamic Finance Authenticity?". Islamicmarkets.com. Retrieved 15 April 2018.
- ^ a b Irfan, Harris (2015). Heaven's Bankers. Overlook Press. p. 136.
- ^ Siddiqui, M.N. (2002). Dialogue in Islamic Economics. Islamabad: Institute of Policy Studies. p. 175.
- ^ Farooq, Riba-Interest Equation and Islam, 2005: p.35-6
- ^ Usmani, Taqi (1998). An Introduction to Islamic Finance. Creative Commons Attribution-No Derivative Works 3.0. p. 107. Retrieved 4 August 2015.
Therefore, it [Murabahah] should neither be taken as an ideal Islamic mode of financing, nor a universal instrument for all sorts of financing. It should be taken as a transitory step towards the ideal Islamic system of financing based on musharakah or mudarabah.
- ^ Cite error: The named reference
mmhi-2008was invoked but never defined (see the help page). - ^ Usmani, Taqi (1998). An Introduction to Islamic Finance. Creative Commons Attribution-No Derivative Works 3.0. p. 81. Retrieved 4 August 2015.
- ^ Murabaha Financing VS Lending on Interest| Qazi Irfan |July 22, 2008 | Social Science Research Network
- ^ Cite error: The named reference
kayali-MHoHwas invoked but never defined (see the help page).
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