What is Murabaha Contract?
Murabaha is an Islamic finance sale contract where the seller (typically a bank) buys an asset and resells it to the customer at cost plus a disclosed mark-up, with payment in installments. It is Shariah-compliant because the bank takes ownership before reselling.
How It Works
- Bank buys the asset from a supplier.
- Bank sells it to the client at cost + disclosed profit.
- Client pays in installments over an agreed term.
Saudi Context
Murabaha is the most common Islamic financing tool in Saudi Arabia — used in car finance, equipment leasing, home finance, and corporate working capital. SAMA-supervised banks structure Murabaha books carefully for Shariah compliance.
Example
A Saudi SME buys equipment for SAR 500K via Murabaha. The bank acquires it and resells at SAR 575K (15% profit), payable over 36 monthly instalments.