A murabaha sale is when someone owns or buys something then resells it for a higher price and may accept to collect the payment in installments. To some, a Murabaha program with installment payments may appear to have the qualities of a loan because in many ways it is similar to a loan from the seller to the buyer. However, there are differences and the following requirements must be met in order for the transaction to be a true sale, not a loan that pretends to be a sale.
- The financier must have full ownership responsibility for the property, preferably with a legal title. This means that if damage, expense or any other form of liability occurs to the property before it is sold, then the financier is the sole responsible party.
- Ownership cannot be based upon a precondition that a particular consumer must purchase it.
- The financier must be the seller on record; otherwise the financier is a broker or lender.
- The sale price on record must be the TOTAL of all installments added together and should not be based on or change with time.
- If there is any future liability for warranty, misrepresentation, or anything else that is legally the liability of a seller, then such liability must fall upon the financier because it is he who sold you the property.
Excluding ANY of the above criteria invalidates the sale as a legitimate murabaha (profit) transaction. If a financier is unable to meet these conditions, it tells us that the relationship is not a true sale, but an interest-based loan since a true resale relationship would find all of the required conditions normal and logical.
In conclusion, for homes and other high-value financing, murabaha is not practically possible unless it is an installment payment sale from an actual owner. The only remaining viable options according to Shariah are musharaka (partnership) or a program that involves Ijara wa Iqtinaa' (rental while purchasing). Read more about what constitutes Ijara wa Iqtinaa'.