Islamic Contract Law – Murābaḥah and the Issue of Risk

Islamic Contract Law – Murābaḥah and the Issue of Risk (Notes)

1. Basic Structure of Murābaḥah

A cost-plus sale contract
Steps:
- Bank buys an asset
- Bank sells it to customer at:
  - Cost + profit (markup)
- Customer pays later (deferred payment)

👉 Key principle:

2. Core Requirement: Bank Must Bear Risk

👉 Therefore:

Bank must:
- Take ownership of the asset
- Bear ownership risk (even if briefly)

3. Types of Risk the Bank Should Bear

👉 These risks justify:

4. The Practical Problem (Modern Practice)

How this happens

👉 Result:

5. Why This is a Problem (Substance Issue)

👉 Because:

6. Example (Clear Illustration)

Proper Murābaḥah
- Bank buys a car
- Car is damaged before sale
- Bank bears loss

👉 Valid:

Problematic Murābaḥah
- Customer selects car
- Bank never truly owns it
- Customer bears all risk

👉 Substance:

7. Key Criticism

Critics argue:
- Many murābaḥah transactions:
  - Only comply in form
  - Not in substance

8. Key Principle to Remember

👉 No risk = questionable profit

Final Summary

Murābaḥah is valid only if:
- Bank genuinely owns and bears risk
If risk is eliminated:
- Contract may:
  - Become formally valid but substantively problematic

One-Line Understanding

LAW