Murabaha

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Islamic Jurisprudence
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Murabaha is defined as a particular kind of sale, compliant with shariah, where the seller expressly mentions the cost he has incurred on the commodities to be sold and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. It is one of the most popular modes used by banks in Islamic countries to promote riba-free transactions. The ratio in which this instrument is being used varies from bank to bank. [1]

Use of the instrument of Murabaha is however restricted only to those cases where Mudarabah and Musharakah are not practicable. The accounting treatment of Murabaha and its disclosure and presentation in the financial statements also varies from bank to bank.