Understand what Murabahah really is before using it as a financing technique Read the bilingual lesson for Cost-Plus Sale (مرابحة): Foundations and Rules of Sale and test your understanding with a focused quiz.
Lesson
1. Cost-Plus Sale (مرابحة) Is First of All a Sale
In modern banking, cost-plus sale (مرابحة) is often discussed as a financing product. Its original juristic meaning is simpler: the seller tells the buyer his actual cost and adds an agreed profit. The profit may be a fixed amount or a percentage of cost, and payment may be immediate or deferred.
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. Cost-Plus Sale vs Bargaining Sale
If the seller discloses cost and states the added profit, the sale is cost-plus sale (مرابحة). If he simply quotes a total price without linking it to cost, it is a bargaining sale (مساومة). Both may contain profit; the difference is cost disclosure and price construction.
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. Why the Rules of Sale Come First
A financing arrangement cannot become valid cost-plus sale unless it is first a valid sale. Ownership, existence, possession, lawful subject matter and price certainty therefore matter before financing profit can be discussed.
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. Rule 1: The Commodity Must Exist
An ordinary sale cannot be concluded for something that does not yet exist. Selling the unborn calf of a cow, for example, is not a valid ordinary sale. Mutual consent alone does not cure the absence of the subject matter.
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.
5. Rule 2: The Seller Must Own the Commodity
The seller must own the commodity when the sale is concluded. A person cannot first sell a car owned by someone else and merely hope to acquire it later. In bank financing, this means the institution cannot sell the requested asset before acquiring ownership.
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.
6. Rule 3: The Seller Must Have Possession
Ownership alone is not enough. Before resale, the seller must have physical or constructive possession. Constructive possession means legal control with transfer of relevant rights, liabilities and risk even without physical movement.
Term explanation: Constructive possession: legal control of an asset together with its relevant ownership risk.
7. Physical vs Constructive Possession
If A buys a car but the seller has not delivered it and A has no control over it, A cannot resell it. If the car is identified, placed in an accessible garage and A is authorized to take it at will, control and risk may have passed, creating constructive possession.
This rule prevents a seller from earning on an asset that has never truly entered his commercial responsibility. Control and the relevant risk must first pass before resale.
8. A Promise to Sell Is Not the Sale
The rules of existence, ownership and possession apply to the actual sale. A person may promise to sell something he does not yet own, but the actual sale must wait until the required conditions are fulfilled. Even where a promise is enforceable for actual loss, a later offer and acceptance are still needed for the sale.
The promise prepares a later transaction but does not itself transfer ownership. The later sale must still be concluded at the proper stage after the required ownership and possession exist.
9. Two Important Exceptions
The ordinary rules are specially modified for two regulated contracts: advance-purchase sale (سَلَم) and manufacturing/construction contract (استصناع). These exceptions have their own detailed conditions and do not remove the normal requirements of 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.
Practice questions
Question 1
What defines a cost-plus sale (مرابحة)?
- Seller discloses cost and adds agreed profit
- Buyer must pay installments
- It is always a bank loan
- Seller need not own the commodity
Question 2
What is a bargaining sale (مساومة)?
- Agreed total price without reference to seller's cost
- Sale with no price
- Fixed-return loan
- Only future-goods sale
Question 3
Deferred payment defines every cost-plus sale.
Question 4
Which three conditions are required before ordinary resale?
- Existence, ownership, and physical or constructive possession
- Future date, guarantee and insurance
- Profit, import and novelty
- Consent only
Question 5
Constructive possession can exist without physical delivery if control and relevant risk have passed.
Question 6
Can a promise to sell be made before ownership?
- Yes, but actual sale waits until conditions are fulfilled
- No promise is possible
- Promise immediately transfers ownership
- Only with interest
Question 7
Which two contracts are special exceptions?
- Advance-purchase sale (سَلَم) and manufacturing/construction contract (استصناع)
- Leasing and gift
- Partnership and inheritance
- Mortgage and guarantee
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