Murabahah (مرابحة)- cost-plus sale- is one of the most common Islamic contracts of trading. It belongs in the broader class of commutative contracts (uqud al-mu’awadhah) and also the class of nominate contracts (uqud musammat). In the present-day realm of Islamic banking and finance, murabahah ranks among the most commonly used modes of financing (it is as old as other financing contracts such as musharakah).

By definition, murabahah is a type of sale (ba’i or bay’) in which the seller candidly reveals to the buyer the cost of the underlying commodity (as originally incurred by the seller), on the agreement that a specific amount of profit (mark-up) will be added thereto. In this sense, murabahah is not an interest-bearing loan; it is, rather, a sale of a commodity for cash/deferred price. Ba’i al-murabahah, in a corporate setting, involves the purchase of a commodity by a bank on behalf of a client so that the bank resells it, once it owns it, to the latter on cost-plus basis. Under this type of sale, the bank discloses its cost and its required profit margin to the client, and seeks to procure the commodity. That is, rather than advancing money to a borrower, as it is commonplace in the conventional banking system, the bank will purchase the goods from a third party and sells them on to the client for a preset price. Today, murabahah accounts for quite a large percentage of Islamic banks’ business (over 60-70% of all financing transactions are conducted through murabahah).