Murabaha is an Islamic financing structure that works as a sales contract, fixing the price of goods or items as required by a customer, inclusive of a pre-agreed profit margin. The bank then makes the purchase and closes the deal with the customer’s seller of choice and subsequently enters into a sale with the customer on Murabaha basis. The customer repays the bank according to pre-defined installments or settlement terms.
Murabaha financing varies according to the nature of purchases and the working capital cycle of the customer, and is typically from 90 to 180 days for raw materials and finished goods, but up to 5 years for machinery and equipment.
