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Murabaha (Asset Base Finance)

What is Murabaha?

Murabaha refers to the sale of a commodity in which the seller agrees with the buyer to provide him a specific commodity on a certain profit added to his cost. The basic principle of Murabaha is that the seller must disclose the actual cost he has incurred in acquiring the commodity and his profit mark-up thereon. The profit may be a specified amount or be based on a percentage.

Murabaha as a Mode of Finance

Most Islamic banks & financial institutions use Murabaha as a convenient mode of Islamic Finance. It can be used as mode of financing for almost any type of asset-backed financing, including Trade Finance, Import & Export, Vehicle Financing, etc. In such cases, the profit mark up may vary according to the nature of the transaction.

Basic Rules

Murabaha is not a loan given on interest but it is the sale of commodity; therefore it has to fulfill all conditions necessary for a valid Islamic sale. Although there are many rules regarding contract of sale, the following three rules are most important to make any valid sale.

  1. The goods must exist at the time of sale.
  2. The goods must be in the ownership of the Seller at the time of the sale.
  3. The goods must be in the physical or constructive possession of the seller at the time of sale.

Silent Features:

  • Asset – based financing with Sharia compliant
  • Member life Takaful coverage
  • Transparent fixed pricing
  • DEEP takes full ownership risk between buying & selling goods
  • No hidden cost
  • No Profit rate fluctuation Risk

The Murabaha Transaction

The most essential element of the transaction is that the commodity must remain at DEEP’s risk after purchase from the supplier and before the second sale to the customer.

Service Name

Purpose

Trade Limit

Trade Period

Group Size

Payment frequency

Profit Margin

Security

Murabaha 1 Service sustain poorest of the poor households based on income & business potential

4,000 – 10,000

US$44-110

1 Year

10 – 15

Bi – weekly

20%

Group Social Guaranty

Postdated Cheques

Murabaha 2 After successful completion of 1st  trade phase, member will avail the next Service facility to expand their business

11,000 – 20,000

US$121-220

1 Year

10 – 15

Bi – weekly

20%

Group Social Guaranty

Postdated Cheques

Murabaha 3 When member complete their 2  year of successful completion, member can avail this Service

21,000 – 40,000

US$231-440

1 Year

10 – 15

Bi – weekly

20%

Group Social Guaranty

Postdated Cheques

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