What is Murabaha in simple terms

Murabaha — one of the most common schemes in Islamic finance: a way to sell goods at a markup instead of lending money at interest.

How the deal is structured

In classical murabaha, the seller (for example, a bank) first buys the goods needed by the client — real estate, equipment, a car — and then resells it to the client at a price higher than the original, with a pre-agreed and transparent markup. The client may pay this amount in installments. Outwardly it may resemble purchasing on installments, but in essence, it is a buy-sell transaction, not a loan at interest.

Why this is not the same as a loan

The key difference from a regular loan is that in murabaha, the bank temporarily becomes the owner of the goods before selling them to the client — and the markup is fixed once when the deal is made and does not change due to a payment delay, unlike the interest rate on a loan, which continues to accrue on the remaining debt. This is what makes the scheme compatible with the prohibition of riba (interest) in Islamic finance.

Where murabaha is used

The scheme is most often used by Islamic banks to finance the purchase of housing, cars, or business equipment. It’s important to understand: «Exchange Broker» — is a broker, not a bank or credit institution, and does not provide financing under the murabaha scheme. For investors who consider Sharia compliance important, the broker offers another tool — a catalog of halal stocks selected according to AAOIFI standards.

This material is for informational purposes and is not a religious ruling (fatwa) or an individual investment recommendation.