The comparison battle between Islamic banking products and conventional banking products are continuing from decades. And from last few years, it’s become a hot topic of concern for the people who are utilizing the services of the two. Consequently, for the popular Islamic financing product Murabaha, many people hold a doubt that it is not according to the actual Shariah laws. As Murabaha can be defined as a cost plus profit base working capital financing that is originally more like sales contract between client and Islamic bank. But in this contract bank fully reveal the cost incurred and profit margin they kept on the financed asset. The process of Murabaha begins when a customer formally request the bank to purchase an asset that can be a raw material, machine, equipment or any other Shariah-compliant commodity etc. so the bank procure the required commodity from third party on its customer behalf. And then bank resale the commodity to client on spot payment or installments basis by charging disclosed piece of profit on actual cost. In short, Murabaha is not a lending based on interest but the sales made on profit.
However, various people argue that Murabaha is just like drinking an alcohol in the cup of tea i.e. they believed that Murabaha is only masked with spiritual Islamic names and internally it is similar as interest based loans. Several of these people drive to this conclusion by just observing the end result, as it is same from both financing modes i.e. in both cases, either it is the customers of conventional bank who is availing interest based financing or the customers of Islamic bank who is tied up in Murabaha financing agreement ends up by giving equal amount of installments to the bank.
Hence, many famous Shariah scholars step forward and give their contribution in clearing the air of misconception by providing logical clarification of people arguments with the help of Quranic statements. As the scholars opine that the final results of both transactions may identical but the essence of transaction differs and Shariah focuses on essences not the outcome. Specifically, the conventional bank financing is monetary transaction in which bank lends on the base of interest (give money and gets money in return) and Murabaha is trade base financing in which bank sales on profits (sale commodity and gets profit). And the Holy Quran verse 2:275 also evident that “sales or trade transactions are acceptable or allowed by Allah but Allah forbidden the transactions base on riba (interest)” because interest base loan force borrower to borrow more and more loan to pay the existing one but on the contrary trade do not trap the person in this borrow-pay cycle and trade also become the source for peoples growth.
[box type=”note” align=”” class=”” width=””]A writer is Neha Essani from Jinnah University for women.[/box]