Islamic Banking   

   Modes of Financing


Murabaha is a financing arrangement whereby the bank agrees to purchase an asset at the request of the customer. The bank takes legal possession of the asset that is then sold to the customer at an agreed sale price consisting of the amount of financing plus the profit margin. It is a cost plus transaction.


  • the bank buys the asset from the supplier for P
  • the customer then buys the asset from the bank at a marked up price (P+X), which is payable on a deferred payment basis
  • the period covering the deferred payment is effectively the period of financing
  • The title to the assets is transferred to the customer at the time of purchase but usually the bank requires its customers to pay an amount as an initial advance in order to secure the sale of the Murabaha asset to the customer (Hamish gedyyah). Hamish gedyyah (security from customer) is presented as an obligation by the
    customer in the financial statements.

Murabaha Sale is divided into two types:

Ordinary Murabaha Sale

There are two parties to it, the seller and the buyer. The seller is an ordinary trader who buys a commodity without depending on a prior promise of purchase, then he displays it for Murabaha sale for a price and a profit to be agreed upon.

Murabaha Sale connected with a promise

There are three parties to it. The seller, the buyer and the bank as an intermediary trader between the buyer and the seller. The bank here does not purchase unless the buyer specifies its desire and a prior outstanding promise to purchase.

The mode of Murabaha sale connected to a promise is used by the Islamic banks which
undertake the purchase of commodities according to the specifications requested by the
customer and then resell them on Murabaha to the one who promised to buy for its cost price plus a margin of profit agreed upon previously by the two parties.


Modes of Financing

 - Murabaha

 - Mudarabah

 - Musharakah

 - Ijarah and Ijarah Muntahi...


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