What is Murabaha
What is Murabaha?
A Murabaha sale is when someone owns (or buys) something then resells it for a higher price and may accept to collect the payment in installments.
To some, a Murabaha program with installment payments may appear to have the qualities of a loan because in many ways it is similar to a loan from the seller to the buyer. However, there are differences and the following requirements must be met in order for the transaction to be a true sale, not a loan that pretends to be a sale:
Requirements for True Murabaha
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Full Ownership Responsibility - The financier must have full ownership responsibility for the property, preferably with a legal title. This means that if damage, expense or any other form of liability occurs to the property before it is sold, then the financier is the sole responsible party.
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No Precondition - Ownership cannot be based upon a precondition that a particular consumer must purchase it.
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Seller on Record - The financier must be the seller on record; otherwise the financier is a broker or lender.
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Fixed Total Price - The sale price on record must be the TOTAL of all installments added together and should not be based on or change with time.
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Seller Liability - If there is any future liability for warranty, misrepresentation, or anything else that is legally the liability of a seller, then such liability must fall upon the financier because it is he who sold you the property.
The Bottom Line
Excluding ANY of the above criteria invalidates the sale as a legitimate murabaha transaction. If a financier is unable to meet these conditions, it tells us that the relationship is not a true sale but an interest-based loan, since a true resale relationship would find all of the required conditions normal and logical.
For homes and other high-value financing, murabaha is not practically possible unless it is an installment payment sale from an actual owner. The only remaining viable options according to Shariah are Musharaka (partnership) or a program that involves Ijara wa Iqtinaa' (rental while purchasing).