Last updated: 8 October 2026
Murabaha is a cost-plus sale used in Islamic finance. Instead of lending money, the bank buys the asset the customer wants and sells it to them at a disclosed profit margin, with the price paid in fixed instalments. Because the bank owns the asset before it sells, and the price is fixed at the start, the return comes from trade rather than interest. That is why Murabaha is one of the most widely used financing contracts in Islamic banking, for cars, goods, equipment and working capital.
Demand keeps growing. Islamic finance assets reached $3.88 trillion in 2024, up 14.9% in a year, and Islamic banking assets grew 17.05%, according to the Islamic Financial Services Board’s 2025 stability report. This guide explains how Murabaha works, how it differs from a loan and from other Islamic contracts, and what a bank’s core banking platform has to do to run it properly.
How Murabaha works, step by step
- Request. The customer identifies the asset and asks the bank to buy it, usually signing a promise to purchase it from the bank.
- Purchase. The bank buys the asset from the supplier and takes ownership, along with the risk that comes with owning it.
- Sale. The bank sells the asset to the customer at cost plus a profit margin. Both are disclosed and fixed in the contract.
- Repayment. The customer pays the sale price in instalments over the agreed term.
- Late payment. The debt does not increase. If the bank charges a late fee to discourage delay, the money goes to charity.
A simple example: the bank buys a car for AED 100,000 and sells it to the customer for AED 112,000, payable over 36 months. The customer pays about AED 3,111 a month, and that price cannot rise during the term. The figures are illustrative.
Murabaha compared with a conventional loan
| Murabaha | Conventional loan | |
|---|---|---|
| What the bank provides | An asset, through a sale | Money |
| Where the bank’s return comes from | A disclosed profit on the sale | Interest on the outstanding balance |
| Price | Fixed at signing | Can change with a variable rate |
| Ownership | The bank owns the asset before selling it | The bank never owns the asset |
| Late payment | No increase in the debt; any fee goes to charity | Penalty interest or fees kept by the lender |
| Early settlement | A rebate (ibra) at the bank’s discretion or under local rules | Set by the loan terms |
Is Murabaha halal?
Islamic scholars accept Murabaha when its conditions are met: real ownership by the bank before the sale, a price and profit that are fixed and disclosed, and no increase in the debt for late payment. The debate is about practice rather than principle. Critics point to cases where the purchase is only a formality, especially in commodity Murabaha (Tawarruq) used for cash financing. This is why every Islamic bank’s Sharia board reviews and approves its Murabaha products, and why the bank needs records that show each step actually happened.
Murabaha, Mudarabah and other Islamic contracts
Murabaha is one of several Sharia-compliant structures, and most Islamic banks use them side by side:
- Mudarabah. A profit-sharing partnership: one party provides capital, the other manages it, profits are shared at an agreed ratio and the capital provider bears financial loss. Often used for investment accounts.
- Ijara. A lease: the bank buys the asset and rents it to the customer, and ownership can pass to the customer at the end of the term.
- Musharakah and Diminishing Musharakah. A joint ownership in which both parties share profit and loss; in the diminishing form, the customer buys out the bank’s share over time, which is common for home finance.
- Wakala. An agency: the bank acts for the customer, for example investing funds, for an agreed fee.
- Tawarruq. Commodity Murabaha, in which the customer buys a commodity on deferred payment and sells it for cash, used for personal and working capital finance.
Our Islamic banking software buyer’s guide covers what each structure needs from the platform, and Sharia-compliant BNPL in Saudi Arabia shows Murabaha and Ijara applied to instalment payments.
What a core banking platform must do to run Murabaha
Murabaha looks like an instalment loan on a statement, but it is not one in the ledger. A platform that models it as a renamed loan creates the very gap a Sharia audit looks for. The core has to support:
- Two transactions, not one. The bank’s purchase from the supplier and its sale to the customer are separate legal events, recorded separately.
- Ownership between purchase and sale. Evidence that the bank held the asset, even briefly, before it sold.
- A fixed sale price. Profit recognised over the term without the price ever changing.
- Late payments routed to charity. A separate account for any late fees, kept out of income.
- Early settlement rebates. Configurable ibra rules for customers who pay early.
- A Sharia audit trail. Contract documents and time-stamped records the Sharia board can review without manual assembly.
- Separate Islamic books. Where a bank runs Islamic and conventional business together, the Islamic book stays strictly segregated.
Who runs on Fimple
Dünya Katılım, a participation bank in Türkiye, is the greenfield case: with no legacy to migrate, it launched on Fimple’s core banking platform in 1.5 months. Other institutions start with new digital channels on top of their existing core and add capability from there, without replacing what already runs.
How Fimple supports Murabaha and other Islamic products
Fimple is a cloud-native, API-first core banking platform that runs Islamic and conventional banking on one system. Institutions configure products such as Murabaha, Ijara, Mudarabah and Wakala with no-code workflow tools, track every step of each financing for audit, and connect Islamic digital wallets, zakat calculators or charity distribution platforms through APIs.
To see how a Murabaha product is set up on Fimple, request a demo.
Frequently asked questions
What is Murabaha in Islamic finance?
Murabaha is a cost-plus sale. The bank buys an asset the customer needs and sells it to them at a disclosed profit margin, with the price paid in fixed instalments. The bank earns from the sale, not from interest on a loan.
Is Murabaha halal?
Murabaha is accepted by Islamic scholars when its conditions are met: the bank genuinely owns the asset before selling it, the price and profit are fixed and disclosed at the start, and the debt does not increase if a payment is late. Each bank’s Sharia board approves its own Murabaha products.
What is the difference between Murabaha and Mudarabah?
Murabaha is a sale on deferred payment: the bank sells an asset at a fixed, disclosed price. Mudarabah is a profit-sharing partnership: one party provides capital, the other manages it, and profits are shared at an agreed ratio while the capital provider bears financial loss.
What happens if a Murabaha payment is late?
The amount owed does not grow, because that would be riba. Banks may charge a late payment fee to discourage delay, but in Islamic finance practice that money goes to charity rather than to the bank’s income.
Can a bank settle a Murabaha early?
Yes. The full sale price is fixed at signing, but many banks give a rebate on the unearned profit when a customer settles early, known as ibra. Whether and how much is set by the bank’s policy and, in some markets, by the regulator.
