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Akajni Laila 1  
 
 

RESEARCH PAPER
MURABAHA: SHARIA COMPLIANT?
December 10, 2015
Akajni Laila

Akajni Laila 2  
Murabaha is a financing structure where an intermediary (a bank) buys a commodity
with title to it, on behalf of a client (the buyer), then sells it to a buyer with an agreed upon
sale price profit margin
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Murabaha is nowadays the principal tool used by Islamic banks as an
equivalent of conventional bank loans
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It is indeed the most popular Islamic finance product
but is also very controversial, and this is the reason why I have chosen to discuss this topic
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However, keeping in mind that the bank only has possession
of the commodity for a very short time, the risk for the bank is very low, which leads us to
the conclusion that the risk bared by the bank is almost equal to zero
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Also, Murabaha should not include Riba in order to be Sharia compliant
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When a conventional bank would have simply proposed an 8% interest to its
clients for a conventional loan contract, the Islamic bank gets those exact same results
through a said commercial installation of purchase and resale
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For instance, if two clients entering into a Murabaha
contract borrow the exact same amount of money, the more time it requires for them to pay
back the loan the higher the interest will be; one of them can end up paying more interest
even though they borrowed the same amount
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Islamic banks benefit in this way from the time value of money, which
is obviously goes against the principles of Sharia
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This is obviously not the case for traders, whose capital gain does not
depend on time at all
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The Islamic bankers persist in saying that during the Murabaha process they behave in
a similar way to traders and not conventional bankers, but another issue that goes against this
idea and shows once again that bankers during Murabaha are nothing different that
conventional bankers is related to VAT taxes
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As a result, what can be concluded
regarding the fact that Islamic banks do not include VAT tax in the Murabaha contract, other
than the fact that Murabaha has nothing to do with trading?
The cost of Murabaha evolves according to the period during which the funds are mobilized;
however, the only product that evolves in the same way is the conventional loan
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The
only way that Murabaha would include VAT taxes is considering differed payments as a
commodity, which is obviously absurd
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However, nothing is neither black or white, nor right or wrong, and I am still sceptical when
it comes to this tricky Islamic finance product that is Murabaha
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Akajni Laila 4  

First, the fact that Murabaha and its conventional equivalent are similar and lead to
the same results is not enough to assert that they are exactly the same when we look at it from
a different point of view and state of mind
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To have a concrete and clear example, let’s imagine there are two pieces of
beef meat; one of them comes from an animal slaughtered according to Muslim rituals, and
there second one is not and comes from another animal
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The same process applies to Murabaha versus conventional loans
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Murabaha can be considered
as illicit (or forbidden) if and only if it is clearly stated in a valid Islamic legal source (the
Quraan, Sharia etc
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In other words, the Murabaha process cannot be considered prohibited
from an Islamic legal point of view, even though a lot of people including myself assimilate it
to conventional loans
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However, according to Islam and Sharia
principles, a purchase has never been subject to the condition that the commodity purchased
should be intended for personal use only; otherwise if this were the case then all commercial
activities and trading would be prohibited under Sharia, which makes obviously no sense
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This popular Islamic finance product is constantly compared to
its conventional equivalent, which is the traditional bank loan, and many people think that
Murabaha is nothing more than a disguised conventional loan, and that its Sharia compliance
should be reconsidered
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I don’t execrate Murabaha and don’t
strongly disagree on its Sharia compliance, but I still think that for the moment it is a wellhidden subterfuge that bypasses the Islamic laws and ethics with a tricky, sneaky and steady
hand
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And it is only based on this spiritual blindness, whose corollary is
materialism, that Murabaha can and will prosper in the modern world
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(2007)
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In Understanding Islamic finance
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Murabaha (1997, September 1)
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islamic-finance
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htm
Murabaha, Popularity and Criticism
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d
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academia
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The concept of Murabaha in a modern Islamic context , PhD
thesis, Salford : University of Salford

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