Murabaha meaning

Banking & Finance—June 2025 case round-up Waller-Edwards v One Savings Bank Plc [2025] UKSC 22 Undue influence—mixed non-commercial transactions—de minimis threshold—Etridge guidance In this appeal, the Supreme Court allowed the challenge unanimously, deciding that a creditor is placed on inquiry—that one party’s assent to the deal may have been procured through undue influence—whenever a non-commercial hybrid arrangement, on the face of it, features a more than de minimis (ie trivial) borrowing component that extinguishes the liabilities of only one co-borrower and so may not be to the other’s financial advantage. Joanne Wicks KC, barrister at Wilberforce Chambers, and Tricia Hemans, barrister at Falcon Chambers, consider the ruling’s implications in News Analysis: Supreme Court holds banks must follow the Etridge protocol where non-commercial hybrid transactions include a more than de minimis surety element (Waller-Edwards v One Savings Bank Plc). This reiterates the Etridge principle in the context of such arrangements, for banks and lenders...

Commodity Murabaha and Tawarruq Murabaha contracts can be structured to fund working capital or acquisitions, including property purchases. When used in this way, the structure is often termed a commodity Murabaha. A related technique, Tawarruq (sometimes called ‘reverse Murabaha’), operates in a very similar manner, and the labels are frequently conflated, yet Shari’ah draws a distinction between them. Commodity Murabaha is required to satisfy the general Murabaha rules and is chiefly concerned with the conduct of the Islamic financial institution (IFI). By contrast, Tawarruq is centred on the Customer: the Mustawriq acquires an asset on deferred terms with the express intention of immediately selling it on for cash to a third party. Scholars of Shari’ah do not all recognise Tawarruq as valid; nonetheless, most consider it allowed where the sale complies with Shari’ah conditions. Meeting working capital needs remains among the most challenging matters in Islamic finance. In the UK, the most straightforward and prevalent route to working capital is still to take an interest-bearing loan from an external...

During the development of the Murabaha structure for the UK, practitioners recognised that its novelty would inevitably create some uncertainty. Consequently, they aimed to embed features that would assist courts when construing Murabaha arrangements. They also acknowledged that conventional legal systems and Shari’ah approach Murabaha in distinct ways. This divergence did not deter Islamic finance participants from advancing the Murabaha agreement; even closely related legal systems, such as the English system, can reach different views on transactions and structures. Accordingly, Islamic finance specialists have crafted Murabaha contracts and other instruments so that they operate under both Shari’ah and the pertinent conventional legal frameworks. The differing readings of Murabaha under conventional law and Shari’ah reflect contrasts in historical evolution and emphasis. In the UK, funders and customers have built a framework around the notion that money can be treated as an asset, creating a market in money itself. Islamic finance rejects that foundational premise, and Islamic financial models place the emphasis on transferring non-monetary assets. This orientation introduces particular considerations that...

This Practice Note outlines the principal distinctions between standard bonds and sukuk, or trust certificates as they are otherwise known, (the Sukuk). It also provides an overview of the principal Sukuk structures and offers commentary on recent trends observed across the Sukuk market. This Practice Note should be read alongside Practice Note: Sukuk documentation and transaction mechanics. What are Sukuk? Sukuk are Shari’ah-compliant certificates, defined by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) as evidencing undivided interests in ownership of tangible assets, usufruct and services, or in the assets of specified projects or particular investment activities. The word ‘Sukuk’ is Arabic and broadly translates as ‘instruments’ or ‘certificates’. Sukuk are frequently described as Islamic bonds and, in general terms, operate as the fixed-income counterpart of a conventional bond or note instrument. Sukuk follow Shari’ah-compliant structures with the broad aim of mirroring a conventional fixed income security. Bonds versus Sukuk Structural features To deliver returns for investors, all Sukuk structures rely upon either...