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 (qabd hukmi) or physical possession (qabd fe’eli). Furthermore, quality and quantity must be defined in clear-cut terms, and the exact date and method of delivery must also be specified.

The purchase price (cost price) of the underlying item of murabaha payable by the seller (e.g., an Islamic bank) to the seller (supplier) shall be disclosed to the purchase orderer before the murabaha contract is concluded. The cost shall include the purchase price and expenses pertaining to the acquisition of the underlying item. If the seller fails to properly disclose the purchase price cost to the purchase orderer shall render the murabaha contract null and void ab initio.