Glossary
Murabahah
A sale where the seller tells you what the goods cost and what profit is being added, and you pay later.
مرابحةmurābaḥah
Murabahah is a cost-plus sale. The bank buys the asset, owns it and carries its risk, then sells it to you at a disclosed cost plus a disclosed profit, payable over time. It is the workhorse of Islamic finance and it is a sale, not a loan, so the price cannot rise afterwards. AAOIFI covers it in Shariah Standard No. 8 and cross-refers to it in the tawarruq standard, which insists there must be 'a real commodity that the seller owns before selling it'.
This is also a card contract structure
The bank buys the thing you want, then sells it to you at a stated cost plus a stated profit, payable later.
How Murabahah works on a credit cardRelated terms
TawarruqBuying something on credit and selling it on for cash, so you end up with money now and a bigger bill later without paying interest.Ibra'A rebate: the bank giving up part of what you owe, usually when you pay early.DaynA debt: money you owe to somebody.Bai' al-InahSelling something to someone on credit and buying it straight back for less cash, so they get money now and owe more later.
Sources
- AAOIFI Shariah Standard No. (8); Shariah Standard No. (30) clause 4/1