Objectives:

After completing this chapter, students should be able to:

1. Understand the concept of Al–Murabahah in Islamic
Muamalat
2. Appreciate the advantages of Al–Murabahah
C hapter 8
3. Apply their understanding to modern business practices

Al-Murabahah
Definition:

Literally: Derives from the root word of “Ribh” which means increase or profit.

Technically: It refers basically to the sale of goods at a price covering the purchase
price plus a profit margin agreed upon by both parties concerned.1 In other words it is
actually a sale of goods with a cost – plus – profit pricing.

Murabahah is actually a sale and purchase contract based on trust (amanah). Thus,
it requires full disclosure and transparency between the parties involved. The cost
and amount of mark – up must be fully disclosed2.

The main criterion that differentiates Buy’ Al – Murabahah from any other type of
sale is that the amount of capital and profit involved must be clearly (and honestly)
revealed and disclosed to the buyer. If not, it would be considered as a normal type
of trade and not Buy’ Al –Murabahah.

Buy’ Al – Murabahah is one of the proposed mechanisms or alternative suggested by

Islamic Scholars that can assist Muslims in their effort to avoid any involvement in
riba.

Example:

A trader who is selling a notebook computer will clearly specify to the buyer in
advance that the total amount of capital or expenses spent for the purchase of that
computer was RM5000. He will then state to the buyer that he will sell it at the cost
price of RM5000 plus an additional profit of RM757. Hence, the total price of the
notebook computer under the Murabahah principle would be RM5757.

With this type of transaction, the potential buyer would be able to gauge the actual
cost of the product and this would prove beneficial for him to evaluate and justify the
reasonable amount of profit that he would allow the trader to charge him for final
price of the product.
In terms of the modes of payment, it could be either on a spot or deferred basis
depending on the capabilities, conditions and requirements agreed upon of both
parties. In the case of deferred payment, it would follow the conditions under the
concept of Buy’ Bithaman Ajil (BBA).

Legal Evidence:
Buy’ Al – Murabahah is a legitimate contract in Islam. The majority of fuqaha’ (jurists)
comprising the sahabah (companions of the prophet), the tabien (followers of the
sahabah) and also the imams of mazhab considered Al–Murabahah as a permissible
contract that follows the rukhsah principle.

However, in the opinion of the Maliki jurists, the practice of Buy’ al - Murabahah is
actually considered as khilaful awla or against the best practice3.

Nevertheless, the legal evidences that support its permissibility are as follows:

Holy Quran:

1. {and Allah has permitted trade and forbidden riba}4

5
2. {O you who believe! Eat not up your property among yourselves in vanities; not even by way of
trade based on mutual consent}6
Al-Hadith:

1. It was reported that when the prophet S.A.W was preparing for hijrah to the city of Yasrib
(Madinah Munawwarah), Abu Bakar bought two camels for the journey. The prophet S.A.W said to
Abu Bakar: “Sell to me (at cost without profit) one of them”. Abu Bakar said: “It is yours for
nothing”. The prophet S.A.W said that: “I would not take it for nothing”7

Pillars of Al - Murabahah
1. Seller
2. Buyer
3. Merchandise or goods
4. Price
5. Sighah: Offer (Ijab) and Acceptance (Qabul)
 Conditions of Al – Murabahah:
1. The amount of capital involved must be clearly specified and disclosed by the
trader to the buyer since the disclosure of the initial cost involved is a condition for
a legitimate murabahah trade. It is also the core principle and the basis for the
formation of a murabahah contract. If it is not known by the buyer, it will not be
considered as a murabaha contract but it will become a normal type of trade
contract where the original cost involved will not be disclosed.

2. The amount of profit charged must also be clearly revealed and made known to
the buyer since it is part of the pricing which is required for any legal trade
contract.

3. Murabahah must not involved the exchange between similar ribawi or usurious
items such as selling one kilogram of superior rice for another kilogram of inferior
rice plus a profit of an extra kilogram of inferior rice. This extra amount is not
regarded as profit but it is actually considered as riba al-fadl.8

4. Both the buyers and sellers must gave their consent on the amount of profit
specified in the contract as an additional amount to the cost or capital, where both
the capital and profit would constitute the actual price that the buyer will pay under
the Buy’ al – Murabahah contract.

5. If it is discovered later that there is indeed a case of cheating, fraud or false

declaration of cost or capital, the buyer has the legal right to revoke or cancel the
Muarabahah contract and make it illegal.

6. If the items sold under the Murabahah principle was bought from another party,
the first transaction must be concluded in a legal and legitimate muamalat
contract.9

7. Murabahah cannot be effected on an asset whose cost price is not known or

cannot be known due to the nature of the asset or the contract leading to
acquisition of that asset. Cost prices includes insurance premium, transporation
cost, import duty etc.10
 Conditions for Profit:
The main objective in any type of business or trading is to achieve certain amount of
profit over and above the total cost spent for the transactions. Conducting business
according to the principles of Islam does not mean selling at cost without having to
gain anything from the cost and effort involved in providing the goods and services
for the customers. However, there are certain guidelines regarding the amount and
type of profit that is permissible in Islam:

1. The amount of profit charged can be in several forms:

a) Ratio: for example, the trader would charge RM100 for every RM1000 that
he spent.

b) Percentage: for example, the trader would charge a 15% profit from the
total amount spent for the purchase.

c) Fixed Amount: for example, the trader would charge a profit of RM757 for
the total cost spent for the purchase.

2. The minimum amount of profit recommended for a successful trade in Islam is

the amount that can sufficiently cover the obligatory payment of business zakat
(2.5%) besides the expenses required from the owner and those that depend on
him11. This is based on a hadith reported by Anas: {You must trade (invest) the
property of the orphans on their behalf so that it will not be eaten up by zakat payment}12
3. There is no limit to the amount of profit that the traders can legitimately charge
their customers since there is not even a single evidence that specifies any
maximum amount permitted for the traders to do so. In fact, there are even
evidence that shows the legality of charging a hundred percent (100%) profit and
even more than that provided that it does not violate any principles of Islamic
Muamalat and are achieved through mutual consent. Among the evidence is:

a. Reported by Urwah that the prophet S.A.W gave him one gold Dinar to buy with it a sheep
but instead he managed to buy two sheep. He then sold one of it for one gold Dinar and
then presented the prophet with both the sheep and one gold Dinar that he acquired. The
prophet S.A.W prayed for him to be given blessings (barakah) in all his trade and
transactions and mentioned that even if he sells solid soil, he will definitely gain profit in
it!13
4. There are several reasons associated to this non-specification of any ceiling
amount of profit in trade, such as follows:
a. The limitation of the profit rate allowable for every single goods available,
regardless of the conditions, time, circumstances and people involved is
something that is against the rule of fair and justice.

b. There are vast differences between the types of goods that have a fast
circulation in nature such as food items that turn over almost on a daily
basis compared to the products that have a rather slow circulation or small
demand such as heavy equipments that might have a turn over of once a
year or two years or more without having to move anywhere. Hence the
profit rate charged for the former should be different from the latter given
the differences in their circumstances and nature.

c. There is also a big difference between traders that sell products in a small
quantity from those that sell massive amount of products, and also
between traders with small capital from those with an enormous amount of
capital. A small portion of profit from a huge capital is considered as huge
also.

d. Differences can also occur between traders that deal in cash compared to
those that accept credit or through a deferred mode of payment. The
former normally charge a lower profit compared to the latter since the latter
will normally have to wait a little bit longer before they could get back their
money. The majority of jurists had allowed traders to charge a higher price
if the payment is deferred compared to cash payment provided that it is
clearly specified in the first place.

e. There would also be differences between goods that are considered as

necessities that are demanded or required by the majority of the people
especially by the poor and needy compared to complementary and
luxury goods, which are purchased only by wealthy peoples. The former
should be charge with a lower rate of profit as an act of mercy to the weak
and needy, and for the latter, it could be charged with a higher profit rate
and a higher price since they could easily live without it.

f. It is also necessary to differentiate between those traders that can easily

acquire their goods or products from those that can only acquire it through
a very difficult, long and cumbersome process from its original sources.
Similarly, there would also be a difference between those that sell their
products as it is (raw), from those that process it or did some modification
or alteration that transformed it into another kind of goods and products.
We should also distinguish between traders that bought their items cheaply
direct from the original producer or manufacturer from those that bought it
expensively through several middlemen since the latter should charge a
higher price than the former14.
In the Islamic Banking practice, Buy al – Murabahah is applicable particularly in
import transactions in the form of the Letter of Credit and also for working capital
financing for the purchase of stocks and inventories, spare parts, raw materials and
semi – finished goods.15

Other product of Al - Murabahah includes the Islamic Private Debt Securities (IPDS)
of the Murabahah Underwritten Notes Issuance Facility (MUNIFs) which is a fund
raising exercise similar to the concept of bonds issuance under the conventional
concept.

1
SUDIN HARON, BALA SHANMUGAM: Islamic Banking System, Concepts And Applications; page 79
(2001) Pelanduk Publication
2
DR. ENGKU RABIAH ADAWIYAH ENGKU ALI; Islamic Banking & Finance Product and Instruments
(Asset Financing and Others), CERT Workshop Proceedings (2003)
3
PROF DR. WAHBAH AZ-ZUHAILY, 5:3766 (1997)
4
Al-Baqarah: 275
5
The most common translation for the particle “illa” would be the word “except” or “unless it be” and not the
word “not even”as stated above. However, this approach of giving it a direct and literal translation could be
rather misleading to the public. As commented by Muhammad Asad, this formulation (of using the word except),
however, has baffled many commentators, for if taken literally, it would imply that wrongful profits from trading
based on mutual agreement are excepted from the general prohibition. However, if we translated it as {not even
by way of trade based on mutual consent} instead of the usual {except it be a trade by mutual consent}, the
meaning would immediately becomes obvious: the believers are prohibited from devouring another person’s
possession wrongfully even if that other person – being the weaker party – agrees to such a deprivation or
exploitation under the stress of circumstances. – refer this interesting comment by Muhammad Asad in The
Message of The Quran page 108 (1980).
6
An – Nisa’: 29
7
Sahih Al-Bukhari
8
PROF DR. WAHBAH AZ-ZUHAILY, 5:3767 – 3769 (1997)
9
Konsep Syariah Dalam Sistem Perbankan Islam; BIRT page 42 (1998)
10
ASSOC. PROF.DR.MOHD DAUD BAKAR; Shariah and Legal Issues Of BBA And Murabaha
Documentation, CERT Seminar Proceedings, (2003)
11
PROF DR. YUSOEF AL-QARADHAWI: Fatawa Muasirah, 2:468 (2000) Al-Maktab Al-Islami
12
Narrated by Tabrani
13
Sahih Al-Bukhari, Kitabul Manaqib Hadith no 3642.
14
PROF DR. YUSOEF AL-QARADHAWI: Fatawa Muasirah, 2:469 - 470 (summary) (2000) Al-Maktab Al-
Islami
15
BIRT, page 43