Murabaha is a type of sales contract used in Islamic finance in which a bank buys a product on behalf of a client, clearly mentioning the cost incurred in buying the product, and resells the product to the same client with an agreed mark-up at a later date. The bank usually pays for the product in full and allows the client to pay the bank back in installments.
Murabaha is a very popular contract in Islamic finance. It is Shariah-compliant because there is no interest rate on the payment the financial institution gives to the client.
- Murabaha Definition. Financial Times Lexicon.