Ethica Institute of Islamic Finance™

What are the factors that need to be considered in determining the price of a Murabaha?

The following factors must be taken into consideration in determining the price of a Murabaha:

• The price must be established as a lump sum or determined in addition to a percentage.

• The price of the asset of a Murabaha may be paid at spot or its payment may be deferred.

• For a deferred Murabaha, the dates for installments must be fixed.

• The price of the Murabaha may not be decreased or increased based on an early or a late payment by the client.

• It is not permissible to allow the price of a Murabaha to fluctuate on the basis of changes in market rates. Once a price is fixed, it cannot be changed. At the time of signing the master financing agreement, a formula for pricing may be developed. At the time of the exchange of the offer and acceptance, the price may be fixed based on this formula. A new formula cannot be made at this point.

• The cost of the asset, i.e. the direct expenses involved in acquiring it and the profit to be earned from it must be taken into consideration while establishing the price.

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