Definition and Scope
Murabahah (مرابحة) is a sale at cost plus a disclosed markup. The doctrinal treatment in this section covers the transaction and its various stages, pre-contract guarantees (promise, Hamish Jiddiyyah), and post-sale guarantees for debt recovery. It does NOT cover other deferred payment sales (Musawamah) or other trust/bargaining sales such as tawliyah and wadi'ah.
Murabahah to the Purchase Orderer (MPO) — A Fiqh Problem-Solving Sequence
The constraint to solve at the outset. A bank cannot sell what it does not own. The Prophet ﷺ told Hakim ibn Hizam, who had asked whether he could sell goods he had not yet acquired: "Do not sell what is not with you" (Sunan Abi Dawud, Sunan al-Tirmidhi, Sunan al-Nasa'i — graded sahih). The MPO arrangement is the fiqh-compliant answer to a single practical question: how does a financial institution intermediate a customer's purchase of an asset without violating this prohibition? Every later step in the procedure exists to solve a sub-problem that follows from this single starting constraint.
The promise (wa'd) and its scholarly status. Once the customer has identified the asset, the bank needs commercial assurance that the customer will buy it after the bank acquires it; the bank, after all, will be sitting on goods it has no use for. The classical question is whether a wa'd is morally binding only or also legally enforceable. The Maliki school (and the position adopted by the OIC International Islamic Fiqh Academy in Resolution 40-41 of its Fifth Session, Kuwait, 1988) holds that a unilateral promise tied to the promisee taking a definite action becomes legally binding when the promisee acts in reliance on it. The Hanafi mainstream historically treated wa'd as morally binding only. Out of the unilateral-vs-bilateral debate, the contemporary consensus permits a unilateral binding promise from the customer, but rejects a bilateral binding promise — because two binding promises facing each other reproduce the legal effect of a forward sale of an unowned asset, which is what the starting hadith forbids.
The security deposit (hamish jiddiyyah) and the open question of `urbun` vs hamish jiddiyyah. A bank that has acquired the asset on the strength of a unilateral promise still bears reputational and inventory loss if the promisor walks away. Hamish jiddiyyah is the contemporary instrument: a deposit that the bank may set off against actual demonstrated damage but must otherwise return. It is doctrinally distinct from `urbun` (earnest money) — under the Hanbali position permitting `urbun`, the seller may keep the entire deposit on revocation regardless of damage; the majority Hanafi/Shafi'i/Maliki view treats `urbun` itself as impermissible because it amounts to taking another's property without compensation. Hamish jiddiyyah was crafted precisely to sidestep that majority objection by capping the bank's retention at proven loss.
Real acquisition with real risk (qabd). The bank now buys the asset from a third-party supplier and must hold it long enough, and at sufficient risk, that what follows is genuinely a second sale rather than a fee-bearing intermediation of the first. Classical fiqh distinguishes qabd haqiqi (physical possession — al-Kasani in Bada'i' al-Sana'i' treats it as the paradigmatic form for movables) from qabd hukmi (constructive possession — registration, title transfer, segregation, electronic credit for fungibles). The contemporary debate is over the minimum risk window between the bank's acquisition and its on-sale: schools of practice differ on whether a few minutes of risk on a documentary basis is sufficient, or whether genuine substantive risk-bearing must be demonstrable. The unifying principle is that whatever form qabd takes, the risk of loss must in fact have moved to the bank before the on-sale — paperwork without risk transfer fails the test.
The sale itself, with mandatory cost-plus disclosure. Murabahah belongs to the bay' al-amanah family — trust sales — alongside tawliyah (sale at cost) and wadi'ah (sale below cost). The defining feature of the family is the seller's declaration of the historical cost, which the buyer relies on. A new offer and acceptance must pass between the parties — the promise did not itself create the sale, only the obligation to enter it. Disclosure must cover the actual purchase price plus expenses directly attributable to the acquisition (freight, insurance, customs, value-adding modification); it must exclude bank overhead and cost of capital. Concealing a discount received from the supplier, or inflating the cost base with overhead, is a violation of the trust-sale duty and brings the contract within the prohibition on bay' al-mu'awamah (the deceptive sale) — the seller has no right to construct an artificial cost figure that the buyer is then asked to accept on trust.
Recovery and the late-payment problem. Once the price becomes a debt, classical fiqh treats the relationship as a creditor-debtor relationship governed by the gharim doctrine (the law of debt and the debtor) and by the strict prohibition on increasing a debt for delay — the very mechanism the Qur'an names as riba al-nasi'ah. A bank cannot stipulate or collect a penalty for late payment as its own income. The contemporary structuring solution, sometimes called the charity-allocation or charitable-undertaking model, requires the customer to undertake to donate a stipulated amount to a designated charity on default; the bank cannot benefit financially from the donation. The bank may, in addition: accelerate all remaining instalments where default is not caused by genuine inability (force majeure); pursue judicial collection and recover its actual legal costs; and enforce real security (mortgage, pledge). What it cannot do is increase the principal owed.
Prohibited Practices in Murabahah
| Prohibition | Why It's Prohibited |
|---|---|
| Commitment fee from customer | Would function as an interest charge |
| Credit facility fee | Would function as an interest charge |
| Bilateral binding promise | Makes the transaction a de facto forward sale — eliminates the bank's ownership risk |
| Sale before possession | Bank must own and bear risk before resale (per the Sale of Commodities and Possession standards) |
| Selling to same customer who sold to bank | This is Bay' al-'Inah — disguised interest |
| Renewing Murabahah on same commodity with same customer | Refinancing disguised as a new sale |
| Murabahah on gold, silver, or currencies on deferred terms | Violates currency exchange (Sarf) rules requiring spot settlement |
| Issuing negotiable Sukuk backed purely by Murabahah receivables | Debt cannot be traded above or below face value |
Cost Disclosure Requirements
Included in cost: Purchase price paid to the supplier; directly related expenses (freight, insurance, customs duties, taxes); expenses that add value (modification, improvement, packaging); broker commissions paid to acquire the goods.
NOT included in cost: Bank's overheads (rent, salaries, IT); cost of capital / funding costs; expenses incurred AFTER the goods are in the bank's possession and ready for sale.
Disclosure obligations: If the bank received a discount from the supplier, this must be deducted from cost. If the bank purchased goods on credit, the credit cost may be included in the disclosed cost. The bank must disclose any defects in the goods it becomes aware of (trust obligation).
The Trust-Sale Family — Four Variants
Murabahah is one member of a family of trust sales (bay' al-amanah) classical jurists distinguish from bargaining sales (musawamah). In a trust sale the buyer relies on the seller's declaration of historical cost; in a bargaining sale the buyer agrees a price without any cost disclosure. The four variants share the disclosure discipline but differ on what is added to or deducted from cost.
| Variant | Arabic | Definition | Pricing relative to cost |
|---|---|---|---|
| Murabahah | مرابحة | Sale at cost plus a disclosed markup | Cost + markup (positive) |
| Tawliyyah | تولية | Sale at cost — no profit, no discount | Equal to cost |
| Wadi'ah | وضيعة | Sale below cost — at a disclosed discount | Cost − discount |
| Musawamah | مساومة | Bargaining sale — no cost disclosure obligation | Whatever the parties agree |
Only the first three are trust sales; Musawamah sits outside the family because the buyer is not relying on a representation of cost. The doctrinal point is that disclosure obligations and the consequences of breach (the buyer's right to rescind on discovering a misrepresented cost) attach only to the trust-sale variants. A Musawamah contract that turns out to embed concealed information is governed by the general rules on deception (tadlis), not by the trust-sale framework.