Islamic Contract – Bay’ al-Murābahah: Disclosure of Cost Price, Profit Margin, and Sale Price

​Islamic Contract – Bay’ al-Murābahah: Disclosure of Cost Price, Profit Margin, and Sale Price
Q1: What must be disclosed in a murābahah contract?
Answer:
In a murābahah contract, the seller must disclose:

• the original cost price of the asset; and
• the profit margin added to the cost.

Once both the cost price and profit margin are disclosed, the final sale price becomes known automatically.
For example:

• Cost price = RM10,000
• Profit margin = RM2,000
• Final sale price = RM12,000

Thus, murābahah is commonly described as:
“A sale based on disclosed cost and disclosed profit.”


Q2: Does murābahah require disclosure of the sale price as well?
Answer:
Yes. Although the essential requirement is the disclosure of the cost price and profit margin, the final sale price must also be clearly known and agreed upon by both parties before the contract is concluded.
The sale price is calculated as:
Cost Price + Profit Margin = Sale Price
Therefore, murābahah involves transparency in all pricing elements to avoid uncertainty (gharar) and ensure fairness between the contracting parties.


Q3: How is murābahah different from musāwamah in terms of price disclosure?
Answer:
The main difference lies in the disclosure requirement.
Murābahah

• Seller discloses:
  • original cost price; and
  • profit margin.
• Buyer knows how the final sale price is calculated.

Musāwamah

• Seller only states the final selling price.
• Original cost price and profit margin are not disclosed.
• Price is determined through negotiation between the parties.

Case Scenario
An Islamic bank purchases office equipment for RM20,000 at the request of a customer. The bank informs the customer that:

• the original purchase cost is RM20,000; and
• the bank’s profit margin is RM5,000.

The bank then sells the equipment to the customer for RM25,000 payable over three years.
This transaction is valid murābahah because:

• the cost price was disclosed;
• the profit margin was disclosed; and
• the final sale price was clearly agreed upon before the contract was concluded.