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New Microsoft - Introduction Most of the Islamic banks and financial institutions are using"Murabahah as an Islamic mode of financing and most of

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Introduction: - Most of the Islamic banks and financial institutions are using "Murabahah" as an Islamic mode of financing, and most of their financing operations are based on "Murabahah". That is why this term has been taken in the economic circles today as a method of banking operations, while the original concept of "Murabahah" is different from this assumption. "Murabahah" is, in fact, a term of Islamic Fiqh and it refers to a particular kind of sale having nothing to do with financing in its original sense. If a seller agrees with his purchaser to provide him a specific commodity on a certain profit added to his cost, it is called a "murabahah" transaction. The basic ingredient of "murabahah" is that the seller discloses the actual cost he has incurred in acquiring the commodity, and then adds some profit thereon. This profit may be in lump sum or may be based on a percentage. The payment in the case of murabahah may be at spot, and may be on a subsequent date agreed upon by the parties. Therefore, murabahah does not necessarily imply the concept of deferred payment, as generally believed by some people who are not acquainted with the Islamic jurisprudence and who have heard about murabahah only in relation with the banking transactions. Murabahah, in its original Islamic connotation, is simply a sale. The only feature distinguishing it from other kinds of sale is that the seller in murabahah expressly tells the purchaser how much cost he has incurred and how much profit he is going to charge in addition to the cost. If a person sells a commodity for a lump sum price without any reference to the cost, this is not a
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This note was uploaded on 06/19/2011 for the course ECON 202 taught by Professor Pharuddin during the Summer '11 term at The School of the Art Institute of Chicago.

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New Microsoft - Introduction Most of the Islamic banks and financial institutions are using"Murabahah as an Islamic mode of financing and most of

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