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.
RELATED TERMS
  1. Murabaha

    An Islamic financing structure, where an intermediary buys a ...
  2. Islamic Banking

    A banking system that is based on the principles of Islamic law ...
  3. Sale

    1) In general, a transaction between two parties where the buyer ...
  4. Accounting and Auditing Organization ...

    A not-for-profit organization that was established to maintain ...
  5. Owner Financing

    When a property buyer finances the purchase directly through ...
  6. Purchase-Money Mortgage

    A mortgage issued to the borrower by the seller of the home as ...
Related Articles
  1. Financial Advisor

    Working With Islamic Finance

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

    The Ins And Outs Of Seller-Financed Real Estate Deals

    There's more than one way to buy or sell a house. Seller financing presents yet another unique option.
  3. Investing

    Ins And Outs Of Seller-Financed Real Estate Deals

    Seller financing works like this: Instead of a buyer receiving a loan from a bank, the person selling the house lends the buyer the money for the purchase.
  4. Investing

    Real Estate Flipping: 8 Disclosures You Must Make

    If you don't tell potential buyers about these situations and possible hazards, you could find yourself in court. Here's how to profit – and stay out of trouble.
  5. Investing

    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.
  6. Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  7. Investing

    What's The Difference Between Options And Futures?

    An option gives the buyer the right, but not the obligation, to buy or sell a certain asset at a set price during the life of the contract. A futures contract gives the buyer the obligation to ...
  8. Taxes

    Deferred Tax Asset

    A Deferred Tax Asset is an asset on a company’s balance sheet that may be used to reduce taxable income. It is the opposite of a deferred tax liability, which describes something that will increase ...
  9. Insights

    How Economies Depend on Sales

    A sale is a transaction in which a buyer receives goods or services, and the seller receives money or some other form of compensation.
  10. Small Business

    Letter of Credit

    A letter of credit is a document from a bank promising to pay the holder a certain amount if the holder fulfills certain obligations. Sellers in commercial transactions often require buyers to ...
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 Answer >>
  2. What types of companies tend to have the most deferred revenue?

    Learn what types of companies tend to have the highest levels of deferred revenue. Understand when deferred revenue is recognized ... Read Answer >>
  3. What are the differences between Ex Works (EXW) and Free On Board (FOB)?

    Learn about Ex Works and Free on Board, the main difference between these Incoterms, and the responsibilities of buyers and ... Read Answer >>
  4. What is the difference between options and futures?

    The main fundamental difference between options and futures lies in the obligations they put on their buyers and sellers. ... Read Answer >>
  5. What are some examples of deferred revenue becoming earned revenue?

    Understand specific examples when a company's deferred revenue is converted to earned revenue, and learn the principles behind ... Read Answer >>
  6. Why is deferred revenue listed as a liability on the balance sheet?

    Understand why deferred revenue is listed as a liability on a company's balance sheet. Learn what is needed to recognize ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center