Murabaha

(redirected from Murabahas)

Murabaha

A structure in Islamic finance in which one party buys a good for cash and then sells it to a second party for deferred payments. For example, if Joe wishes to buy a house, he asks a bank to purchase it and then sell it to him for a higher price than the bank paid. While the bank pays cash up front, Joe amortizes his payments over an agreed-upon number of years. From Joe's perspective, this is similar to a conventional mortgage because the payments are likely the same. Because there is no debt with interest, a murabaha is thought to conform to Islamic law. However, murabahas are controversial even within Islamic finance because some scholars believe the profit on the second sale imitates interest too closely.
References in periodicals archive ?
Despite this risk, Murabahas are priced at the higher end of the consumer funding scale.
Murabaha and Musharaka are available that are used in practice.
Because Muslims may not charge interest but can make a profit, the basic trade deal, the Murabaha, is a 'cost plus' transaction in which the seller supplies goods to the buyer at a price which includes his disclosed costs plus a disclosed profit.
These ancient Murabaha trading rules are clearly framed to avoid disputes or problems and no doubt evolved over time.
Bahrain's Gulf Finance House plans to raise capital by $300 million through equity-linked convertible murabahas or similar instruments, and has hired Deutsche Bank AG as a structuring agent.
The company raised $300 million in fresh capital in a rights issue in October last year and placed a $100 million convertible murabaha, an Islamic financing instrument, with Deutsche Bank AG in November.
Most traditional instruments use the balance sheet, and because they're based on commodity murabahas they entail having to pay fees for commodities brokers," Khan said.
Khan said most Islamic hedging tools are based on the murabaha and reverse murabaha transaction.