Shariah terms ‘Agreement of Murabaha’ as a kind of sale where seller expressly declares the cost of the asset purchased, and sells it to customer by adding some profit thereon. In other words,rather than advancing money to customer, Bank/ Modaraba buys the asset from a third party and resell it to customer at an agreed price. The price is then further divided into number of installments to be payable by customer upto an agreed period.
It is a two sale contract, one through which Bank/ Modarabaacquires the asset and the other through which it sells asset to the customer. For execution of first sale, Bank/ Modarabaassigns the customer as its agent. After the purchase of asset on behalf of Bank/ Modaraba, the sale two is executed.
Murabaha can be used for purchase of any current and non-current asset of tangible nature, provided that it doesn’t lies under parameters of forbidden commodities in Shariah ruling.