Breakdown
How it works
The bank buys the asset and sells it to you at cost plus an agreed profit, payable in instalments. The profit is fixed at contract and does not increase if you pay late (a charity penalty may apply instead). The instalment maths equals a reducing-balance loan at the quoted profit rate; the difference is in the contract structure and remedies.
Formula
Worked example
100,000 asset, 20,000 down, 5.5% over 48 months: 1,860 a month, profit 9,290, sale price 109,290. Conventional at 6.5%: 1,897 a month, interest 11,050.
Frequently asked questions
Is murabaha really different from a loan?
Economically similar; legally different. The bank takes ownership risk briefly, profit is fixed and cannot compound, and late fees go to charity. Scholars accept it as compliant when the asset sale is genuine.
Can I settle early?
Yes, and banks usually grant a rebate (ibra') on remaining profit at their discretion — ask for the early settlement policy in writing.
Which banks offer it?
UAE: all Islamic banks and Islamic windows of conventional banks; UK: Al Rayan, Gatehouse; Malaysia and Pakistan: most banks.