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What Is a Murabaha Agreement – mOVE 360

What Is a Murabaha Agreement

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A Murabaha agreement is a type of Islamic financing arrangement commonly used in the banking industry. It is a contract in which the seller agrees to sell a specific item to the buyer at a markup, which is agreed upon in advance. The buyer then pays the seller in installments, typically over a period of several months or years, until the full purchase price has been paid.

This type of financing arrangement is frequently used for the purchase of large items, such as real estate or vehicles. It is also used for business-to-business transactions, such as the purchase of raw materials or equipment.

One of the key features of a Murabaha agreement is that it is considered to be a halal financing option, meaning that it is compliant with Islamic principles. Islamic finance prohibits the charging of interest, so the markup in a Murabaha agreement is not considered to be interest, but rather a fee for the seller`s services.

Another feature of a Murabaha agreement is that it is based on a fixed-price contract. This means that the buyer and seller agree to a specific price for the item upfront, and that price does not change over the course of the agreement, even if market conditions change.

Overall, a Murabaha agreement is a unique type of financing arrangement that is compliant with Islamic principles. It is commonly used in the banking industry for large purchases, and provides a halal financing option for those who prefer to avoid interest-based transactions.

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