Musawamah

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 differs from murabaha, where a buyer knows the cost of the underlying asset.

BREAKING DOWN 'Musawamah'

Since the seller is not obligated to disclose the cost of obtaining or producing the merchandise for sale to the buyer, the agreed selling price is left to the bargaining powers of both the seller and buyer. 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.