Section 1: Background and Preamble
Murabahah is a form of trust-sale that aims to finance acquisition of assets on short or long term basis. In a classical Murabahah practice, no financial intermediaries are involved and the customer would purchase an asset from the supplier on cost plus mark-up basis. Payments are made either on a deferred or cash basis. The asset would have already been owned by the supplier and the purchase price is a mark-up price which is made known before the transaction. In modern Islamic financial practice, Murabahah sale established itself as a mode of asset financing with an agreed and known mark-up. Being the most prevalent financing mechanism in Islamic finance, the Murabahah sale instrument has provided a Shariah-compliant alternative to interest-based financing mechanisms. The Murabahah contract has also been applied for deposit taking and issuance of sukuk.
The development of Murabahah from a sale-based transaction to a financial instrument has raised a number of issues in the local and international market practices. The benefit of a parameter is to provide a more comprehensive and complete understanding of the nature and features of Murabahah contracts as a guidance to all finance practitioners, finance professionals, academicians, scholars and regulators. Detailed references to specific Shariah fatwas, opinions and standards would facilitate scholars in Islamic finance to expound further the systematic development of Islamic financial products that adopt the Murabahah contract.