What Is Murabahah (Cost-Plus Financing)?

Participation Finance Concepts 12.03.2021, 14:01
What Is Murabahah (Cost-Plus Financing)?

Murabahah is a word of Arabic origin. It is the act of selling goods by adding its profit. If banks operate in line with Islamic principles, it means that they follow the murabahah rules. Murabahah is the process of buying goods and selling them to a customer by adding a certain amount of profit to them. It can be seen as the Islamic financing model.

Participation banks in our country usually use the murabahah system.  The buyer negotiates for the goods that they will buy. But they do not make any contract with the seller. Then, they apply to the participation bank for the goods they consider buying. Here, the participation bank investigates whether the goods to be purchased can be sold within the framework of Islamic law. The buyer is also investigated for whether they have the financial means to buy the goods. If there is no question in the sale of the goods according to the Islamic rules, and if the buyer also has sufficient financial means, the participation bank orders the goods from the seller. Afterwards, the participation bank contacts the buyer and states that they can buy the goods. When the buyer receives the goods, the participation bank makes the necessary payment to the seller. Then, the buyer starts to pay the cost of the purchased goods to the bank in instalments.

What are the Conditions for a Product to be Eligible for Murabahah Credit?

First of all, the goods need to be sold and bought in order to get a murabahah credit. In order to avoid interest or any features similar to interest, the product to be bought should not be similar to money such as gold. The product to be bought with murabahah credit must be halal according to Islamic law.

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