Cost-Plus Financing (مرابحة): From Sale to Banking Structure

1. Cost-Plus Sale Is Not Originally a Financing Mode

Cost-plus sale (مرابحة) is originally a sale, not a loan or an ideal financing model. Participation structures such as partnership (مشاركة) and investment partnership (مضاربة) are closer to direct profit-and-loss participation. Cost-plus financing is used where those structures are not practically suitable, but only if real sale rules are preserved.

This rule is especially important in financing because cost-plus sale (مرابحة) is valid only when the financing remains a real sale. The sequence of ownership, possession, risk and final sale must therefore be visible in the transaction.

2. Changing the Label Does Not Change the Transaction

An interest-bearing loan does not become lawful merely by replacing 'interest' with 'profit' or 'mark-up'. The decisive question is whether a real commodity is purchased, owned, possessed and then sold through a valid cost-plus sale (مرابحة).

This rule is especially important in financing because cost-plus sale (مرابحة) is valid only when the financing remains a real sale. The sequence of ownership, possession, risk and final sale must therefore be visible in the transaction.

3. Murabahah Finances a Purchase — Not Any Cash Need

Cost-plus financing can be used when a client genuinely needs to purchase a commodity, such as cotton for a factory. It cannot simply provide cash for salaries, utility bills, or payment for goods already purchased earlier. A new real sale is required.

This rule is especially important in financing because cost-plus sale (مرابحة) is valid only when the financing remains a real sale. The sequence of ownership, possession, risk and final sale must therefore be visible in the transaction.

4. Ownership and Risk Must Come Before Resale

Before selling to the client, the financier must own the commodity and take physical or constructive possession. During that period—even if short—the commodity must genuinely be at the financier's risk. This temporary ownership risk is the core commercial feature separating sale from a cash loan.

The ownership must be real rather than only documentary. Rights, benefits and the relevant ownership risk should follow the share actually owned at that stage.

If the financier never bears ownership risk, the claimed sale structure is seriously defective.

5. Direct Purchase Is the Preferred Method

The cleanest method is for the financier to purchase directly from the supplier, take possession, and then sell to the client. Where genuinely impractical, the client may act as purchasing agent, but his agency role must remain distinct from his later role as buyer.

This rule is especially important in financing because cost-plus sale (مرابحة) is valid only when the financing remains a real sale. The sequence of ownership, possession, risk and final sale must therefore be visible in the transaction.

6. The Five Stages of Agency-Based Murabahah

The five stages are: overall promise arrangement; appointment of the client as purchasing agent; purchase and possession on behalf of the financier; client's notice and offer to buy; financier's acceptance completing the cost-plus sale (مرابحة). Only then does sale ownership and risk move to the client.

This rule is especially important in financing because cost-plus sale (مرابحة) is valid only when the financing remains a real sale. The sequence of ownership, possession, risk and final sale must therefore be visible in the transaction.

7. The Parties Change Legal Roles

At first the parties are promisors. During agency they are principal and agent. When the institution buys from the supplier, it is buyer. In the final Murabahah sale, the institution is seller and the client buyer. Deferred payment then creates creditor–debtor status from the sale price.

This rule is especially important in financing because cost-plus sale (مرابحة) is valid only when the financing remains a real sale. The sequence of ownership, possession, risk and final sale must therefore be visible in the transaction.

8. No Buy-Back From the Client

The financing commodity should be purchased from a third party. The financier should not simply buy an asset from the client and immediately resell the same asset to him through a pre-arranged buy-back. That circular structure lacks the genuine third-party purchase that gives the transaction commercial substance.

This rule is especially important in financing because cost-plus sale (مرابحة) is valid only when the financing remains a real sale. The sequence of ownership, possession, risk and final sale must therefore be visible in the transaction.

9. Security Comes After Debt Exists

A promissory note or similar debt instrument logically belongs to a debtor–creditor relationship. That relationship arises after the actual deferred sale, not at the initial promise stage. Security documents should therefore match the legal stage actually reached.

This rule is especially important in financing because cost-plus sale (مرابحة) is valid only when the financing remains a real sale. The sequence of ownership, possession, risk and final sale must therefore be visible in the transaction.

10. Default Does Not Increase the Sale Price

Once the cost-plus sale price is fixed, default does not permit an increase. A separate charitable undertaking may apply to deliberate default, but the recovered amount cannot become the financier's income. This preserves the difference between a sale price and interest that grows with time.

The important point is certainty at the time of contract. Different options may be discussed beforehand, but once the sale is concluded one definite price must govern the transaction.