Murabaha (cost-plus sale) is a type of ba’i (sale) in which the seller is under obligation to reveal the actual cost of the object of sale to the buyer. The two parties mutually agree on the mark-up (profit) and the repayment terms and conditions. The object of sale (commodity) must exist at the time of sale and the seller must have physical possession thereof. In practice, a murabaha contract can be put into use in various financial contexts including:

• Mortgages: on the retail level, murabaha can be used for financing home sales in a shari’a-compatible way. A mortgage financing facility may involve the purchase of specific residences at specific prices by an Islamic bank and then reselling them to end users or consumers. The purchase price (including a mark-up) is usually paid in installments over some period of time (e.g. 5, 7, or 10 years or suchlike).
• Trade finance: merchants can approach Islamic banks with the aim of obtaining financing for their purchases of commodities that would be resold once the ownership title has been transferred to them.
• Major assets financing: murabaha is used to finance the purchase of assets such as cars, appliances, equipment, etc, whether for the benefit of retail customers or businesses (see: using murabaha in purchase of commodities and assets).
• Cash management: Islamic banks can employ murabaha as a cash management tool. A bank may be requested to purchase and sell goods, typically non-monetary commodities such as aluminum, copper, etc. The sales are made with payment deferred at a price higher than the spot price. In this respect, the bank acts as a merchant intermediary and not as an agent of the purchaser. Using murabaha structure, any idle cash with the bank can be employed for short-term periods. The bank’s profit is the difference between deferred cash inflow and immediate cash outflow.
• Working capital financing: a company may resort to murabaha in order to finance its operations or expansions. For example, an industrial firm can apply for a financing facility from an Islamic bank. The proceeds of the facility will be used to finance the firm’s purchases of inputs or raw materials, machinery and equipment, etc.
• Letters of credit: an Islamic bank can use murabaha to open letters of credit (L/Cs) on behalf of customers. A customer may request the bank to open an L/C to import goods from abroad through a multi-step process (see: using murabaha in opening letters of credit).
• Syndicated loans: murabaha has been used by Islamic and conventional banks to provide a short-term facility to projects such as utilities, infrastructure developments, and so on. A number of Islamic banks and/or conventional banks may form a syndicate to provide a facility to a utility company (power plant, water company, etc) which will use the proceeds to finance the purchase of equipment required for its operations on a murabaha basis.