Murabaha (also spelled murabahah) is a shari’a compatible mode of debt financing which involves the sale of a commodity mostly for a deferred price. The two parties to the contract are: a financier (usually an Islamic bank) and a client. In its business form, murabaha is initiated when a potential buyer orders a commodity to pay for it with a specified mark-up (profit). The seller accepts and accordingly procures the commodity. Once the commodity is legally possessed by the seller, the buyer is asked to purchase it and takes delivery. As such, the commodity must exist at the time of contract, and must be owned by the seller at that time whether via constructive or physical possession. Furthermore, quality and quantity must be defined in clear-cut terms, and the exact date and method of delivery must also be specified.

Inherently, murabaha contracts are associated with the following risk factors:

• The buyer (or purchase orderer) initially instructs the seller to procure a commodity. This instruction often doesn’t amount to an actual purchase unless it is embedded with a binding promise.
• The buyer may default on payment in murabaha on credit transactions.
• Similarly, the buyer may delay payment after a due date (s).
• The supplier of goods may not deliver the goods at all, or may not adhere to preset specifications.
• The goods may raise, per se, specific shari’a-related concerns (shari’a violations).