Murabahah
Murabaha - as a mode of finance
Originally, murabahah was a particular type of sale and not a mode of financing. The ideal mode of financing according to Shariah are mudarabah or musharakah. However in the perspective of the current economic circumstance there are certain practical difficulties in using mudarabah and musharakah as instruments in every type of financing. Therefore, the contemporary Shariah experts have allowed, subject to certain conditions, the use of murabahah on a deferred payment basis as a mode of financing. However, there are two important and essential points which must be remembered in this respect:
1. It should never be overlooked that originally murabaha was not a mode of financing. Murabahah is only a device to escape from "interest" and not an ideal instrument for carrying out the real economic objects of Islam. Therefore, Murabahah as an instrument of financing should be used as a transitory step taken in the process of the Islamization of the economy and its use should be restricted to those cases where mudarabah or musharakah are not practicable.
2. The murabahah transaction does not come into existence by merely replacing the word 'interest' by the words "profit" or "mark-up". Actually, murabahah as a mode of financing, has been allowed by the Shariah scholars with some conditions. Unless these conditions are fully observed, murabahah is not permissible. In fact it is the observance of these conditions which can draw a clear line of distinction between the interest-bearing loan and the transaction of murabahah. If these conditions are not observed, the transaction becomes invalid according to Shariah.
Basic features of Murabahah financing
1. Murabahah is not a loan given o interest. It is a sale of a commodity for a deferred price which includes an agreed profit added to the cost.
2. Being a sale and not a loan, murabahah should fulfill all the
Originally, murabahah was a particular type of sale and not a mode of financing. The ideal mode of financing according to Shariah are mudarabah or musharakah. However in the perspective of the current economic circumstance there are certain practical difficulties in using mudarabah and musharakah as instruments in every type of financing. Therefore, the contemporary Shariah experts have allowed, subject to certain conditions, the use of murabahah on a deferred payment basis as a mode of financing. However, there are two important and essential points which must be remembered in this respect:
1. It should never be overlooked that originally murabaha was not a mode of financing. Murabahah is only a device to escape from "interest" and not an ideal instrument for carrying out the real economic objects of Islam. Therefore, Murabahah as an instrument of financing should be used as a transitory step taken in the process of the Islamization of the economy and its use should be restricted to those cases where mudarabah or musharakah are not practicable.
2. The murabahah transaction does not come into existence by merely replacing the word 'interest' by the words "profit" or "mark-up". Actually, murabahah as a mode of financing, has been allowed by the Shariah scholars with some conditions. Unless these conditions are fully observed, murabahah is not permissible. In fact it is the observance of these conditions which can draw a clear line of distinction between the interest-bearing loan and the transaction of murabahah. If these conditions are not observed, the transaction becomes invalid according to Shariah.
Basic features of Murabahah financing
1. Murabahah is not a loan given o interest. It is a sale of a commodity for a deferred price which includes an agreed profit added to the cost.
2. Being a sale and not a loan, murabahah should fulfill all the