Murabaha Financing vs. Lending on Interest
39 Pages Posted: 11 Apr 2011
Date Written: July 22, 2008
It is frequently argued and claimed that Islamic Banking and Finance (IBF) is an “asset based” industry i.e., all forms of financing within the industry should involve some asset(s). It is further argued that the real or fundamental form of financing in Islamic doctrine is based on PLS (Profit and Loss Sharing) concept or arrangement, which is almost insignificant in practice. The bulk of financing deals executed in IBF industry are based on secured forms of financing (akin to conventional debt form of financing) particularly the famous Murabaha Financing devised by contemporary Islamic legalists.
The financial outlook of Islamic Murabaha Financing and conventional debt/loan financing is the same; there is no difference from professional’s or banker’s point of view, then what makes them different principally i.e., where does the difference lies for the Islamic permissibility of the former one and the impermissibility of the other. I have argued that the difference is not financial at all but economic in nature.
Keywords: Murabaha, Riba, Interest, Islamic Banking, Discounting
JEL Classification: B49, D63, K19, P19, Z10
Suggested Citation: Suggested Citation