Al-Baraka Bank: Features of Murabaha and Leasing: Murabaha

Murabahah

1. Murabaha is a particular kind of sale whereby the seller acquires a
   commodity and then sells it to another person at a profit or mark-up
   expressly disclosing to the purchaser the cost price that he (the seller) has
   paid for the commodity.

2. The profit in Murabaha can be determined by mutual consent either by
    lump sum or through an agreed ratio of profit to be charged over the cost.

3. All the expenses incurred by the seller in acquiring the commodity like
   freight, custom duty etc. may be included in the cost price and the mark-up
   can be applied on the aggregate cost.

4. Murabaha is valid only when the exact cost of a commodity can be
    ascertained. If the exact cost cannot be ascertained the commodity cannot
    be sold on a murabaha basis. In this case the commodity must be sold
    musawamah (bargaining) basis i.e. without any reference to the cost or to
    the ratio profit/ mark-up. The price of the commodity in such cases shall be
    determined in lump sum by mutual consent.

Example (1) “A purchased a pair of shoes for Rs. 100/-. He wants to sell it
                   on a murabaha basis with 10% mark-up. The exact cost is
                   unknown. The murabaha sale is valid.

Example (2) “A purchased a ready-made suit with a pair of shoes in a single
                   transaction for a lump-sum Rs. 500/-, A can sell the suit with
                   the shoes on a murabaha basis. A cannot, however, sell the sell
                   shoes separately on a Murabaha basis, because the cost of the
                   shoes as distinct from the cost of the suit is unknown. If A
                   wants to sell the shoes separately he must sell it at a lump sum
                   price without reference to the cost or the mark-up.

This piece is taken from the website of Al-Baraka Bank.

See on-line at: http://www.albaraka.co.za/Islamic_Banking/Features_of_Marabaha_and_Leasing/Murabahah.aspx

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