Murabaha

AAA

DEFINITION of 'Murabaha'

An Islamic financing structure, where an intermediary buys a property with free and clear title to it. The intermediary and prospective buyer then agree upon a sale price (including an agreed upon profit for the intermediary) that can be made through a series of installments, or as a lump sum payment.

BREAKING DOWN 'Murabaha'

Murabaha is not an interest-bearing loan, which is considered riba (or excess). Murabaha is an acceptable form of credit sale under Sharia (Islamic religious law). Similar in structure to a rent to own arrangement, the intermediary retains ownership of the property until the loan is paid in full.

It is important to note that to prevent riba, the intermediary cannot be compensated in addition to the agreed upon terms of the contract. For this reason, if the buyer is late on their payments, the intermediary cannot charge any late penalties.

RELATED TERMS
  1. Islamic Banking

    A banking system that is based on the principles of Islamic law ...
  2. Takaful

    A type of Islamic insurance, where members contribute money into ...
  3. Sharia

    Islamic religious law that governs not only religious rituals, ...
  4. Rent To Own

    An arrangement between a consumer and a seller that allows the ...
  5. Riba

    A concept in Islamic banking that refers to charged interest. ...
  6. Usury

    The act of lending money at an interest rate that is considered ...
Related Articles
  1. Retirement

    Working With Islamic Finance

    There is no division between the spiritual and the secular in this type of socially responsible investing.
  2. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  3. Home & Auto

    Avoiding the 5 Most Common Rent-to-Own Mistakes

    Pitfalls that a prospective tenant-buyer could encounter on the road to purchase – and how not to stumble into them.
  4. Home & Auto

    Renting vs. Owning: Which is Better for You?

    Despite the conventional wisdom, renting might make more financial sense than you think.
  5. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  6. Home & Auto

    The Pros and Cons of Owner Financing

    Details on the upside and risks of this type of deal for both the owner and the buyer.
  7. Credit & Loans

    Avoiding Red Flags with Online Mortgage Lenders

    Using an online mortgage lender can be convenient, but how do you know you can trust one? Follow these tips to make sure the lender is legit.
  8. Credit & Loans

    How To Boost Your Credit Score To Save Thousands

    One of the first steps you should follow before buying a home is to boost your credit score. And how do you do that? Here, we tell you how.
  9. Credit & Loans

    5 Mortgage Loans You Didn't Know About

    These lesser known mortgage loans are often overlooked by potential home buyers.
  10. Economics

    Real Estate: How the Bubble Will Pop

    This real estate bubble is much different from the last one. Understanding it is imperative if you plan on making any investments.
RELATED FAQS
  1. What is an Islamic investment policy?

    Islamic investments are a unique form of socially responsible investments because Islam makes no division between the spiritual ... Read Full Answer >>
  2. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  3. Can I take my 401(k) to buy a house for my children?

    Under the standard regulations for 401(k) retirement savings plans, you may elect to withdraw funds from your 401(k) for ... Read Full Answer >>
  4. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  5. What is the difference between legal liability and public liability?

    When you see the term "public liability" attached to a business, its products or its services, it refers to a specific type ... Read Full Answer >>
  6. What does the American Dream mean to different generations?

    The American Dream at its core is the belief that every generation should enjoy greater prosperity than the generation before ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  2. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  3. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  4. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  5. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  6. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!