A murabaha is the sale of goods (like durables, vehicles, equipment, commodities, etc) at cost plus an prespecified mark-up (a profit margin agreed between the seller and buyer). Shari’a maintains that the seller should reveal to the buyer the actual price at which he purchased the item. Upon informing the buyer of the actual cost, the seller can stipulate the amount of profit in addition to the original cost. The cost (or capital outlay) includes the purchase price and any other expenses incurred by the reselling buyer (i.e., the murabaha seller).

For a murabaha transaction to comply with shari’a rules and principles, the following set of conditions must be strictly observed:

1. The seller should make the original acquisition cost known to the buyer.
2. The original purchase contract should be sahih (valid).
3. The seller should disclose the specific terms applicable to the purchase price (i.e., if the murabaha price will be paid at the contract date or in installments).
4. The seller should reveal all defects or faults that have occurred to the underlying item after acquisition.
5. In case the seller breaches any of the above stipulations, the buyer shall have the option to nullify the contract bilaterally, proceed with the sale in its current state, or have recourse to the seller for discrepancies.