What is Murabahah? Meaning, Definition, and Example

Murabahah is an Islamic financing method where a bank or financial institution purchases an asset on behalf of a client and sells it to them at a marked-up price, with the cost and profit margin disclosed upfront.

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It differs from Mudarabah, which is a profit-sharing contract in Islamic finance. Mudarabah meaning refers to a partnership where one party provides the capital (rab al-mal) and the other provides the expertise and management (mudarib). In the context of Mudarabah in Islamic banking, the profits generated from the investment are shared according to a pre-agreed ratio, while losses are borne solely by the capital provider, unless caused by the mudarib's negligence.

The mudarabah contract encourages collaboration while adhering to Shariah principles, ensuring fairness and transparency in financial transactions.

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