Murabaha

Murabaḥah, murabaḥa or murâbaḥah (Arabic مرابحة) is an Islamic term for a sale where the buyer and seller agree on the markup for the item(s) being sold. In recent decades it has become a term for "the most prevalent financing mechanism" in Islamic (i.e. "shariah compliant") finance, based on murabaḥa purchases. As an Islamic financing structure, the seller is the "lender", typically selling something the borrowing person or company needs for their business. The buyer/borrower pays in periodic installments, and at a higher price than the seller/lender paid for the item(s), but with a profit margin agreed on by both parties. The profit made by the seller/lender is not regarded as interest on a loan, (or any kind of compensation for the use of the lender's capital), as this would be forbidden as riba. Instead it is seen as "a profit on the sale of goods". Murabaha is similar to a rent-to-own arrangement, with the intermediary retaining ownership of the property until the loan is paid in full.