What is Murabaha?
Murabaha is a Sharia-compliant financing structure based on a cost-plus sale: the bank buys an asset on behalf of a customer and immediately sells it to the customer at the original cost plus an agreed, disclosed markup, payable in installments. The markup is fixed and disclosed up front, distinguishing Murabaha from conventional interest-bearing finance.
How It Works
- Customer identifies the asset and requests financing.
- Bank purchases the asset and takes constructive possession.
- Bank sells the asset to the customer at cost plus markup, payable in installments.
- Cost and markup must be disclosed clearly to the customer.
- Sharia board approves the structure and documentation.
Saudi Context
Murabaha is a core retail and corporate financing product at Saudi Islamic banks (Al Rajhi, Alinma, Bank AlBilad). It is widely used for vehicle finance, equipment finance, and trade finance. SAMA-regulated consumer protection rules require Saudi banks to disclose APR alongside the Murabaha markup so customers can compare offers transparently.
Example
A customer wants to buy a vehicle priced SAR 80,000. The bank purchases the vehicle for SAR 80,000 and sells it to the customer for SAR 96,000 payable over 48 monthly installments of SAR 2,000. The SAR 16,000 markup is the bank’s disclosed profit, fixed for the contract life.