DEFINITION of 'Musawamah'
An Islamic finance term that describes a sale in which the seller is not obligated to disclose the price paid to create or obtain the good or service. This defers from murabaha, where a buyer knows the cost of the underlying asset.
BREAKING DOWN 'Musawamah'
Musawamah usually occurs when it is difficult to determine what the cost of a particular good or service was, or when the good is comprised of a pool of products. In order to comply with Shari'ah, there are many restrictions to a musawamah, including:
- The underlying asset must be in existence and in the sellers' possession at the time of the sale.
- The sale must occur instantaneously, future sale dates are void.
- The asset must be of value and usable.