Jurisdiction(s):
United Kingdom

Key definition

Murabaha definition

What does Murabaha mean? In legal practice, murabaha is an Islamic finance, cost‑plus sale used as a Sharia‑compliant alternative to an interest‑bearing loan: a financier acquires an identified asset and immediately resells it to the customer at cost plus a disclosed profit, payable on deferred terms (often instalments). The expression is descriptive rather than statutory; UK tax legislation typically refers to “alternative finance” purchase and resale arrangements and gives broadly debt‑like tax treatment, including relief to avoid double charges on back‑to‑back transfers for land transactions. Key features include: disclosure of cost and profit; two sales with the financier taking title (and interim risk) before resale;...

UK Murabaha Facilities: Documentation, Master Agreements and Transaction Mechanics, RFR-Based Pricing, Rollover and Netting, Prepayment, Late Payment, Conditions Precedent and Covenants versus Conventional Loan Structures

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Practice notes

Both a straightforward murabaha and a commodity Murabaha can be arranged either for a one-off deal or set up as a revolving facility, allowing multiple deals to be undertaken under a single umbrella. In each case, the documentation sets out the core mechanics for entering into transactions. For revolving arrangements, however, the customer (the Customer) and the financier (an Islamic financial institution (IFI)) typically conclude a master agreement, which governs the fundamental terms of their subsequent dealings, while the specifics for any particular trade are confirmed at the point of execution. In look and effect, this echoes familiar conventional products, including the revolving loan facility and the note purchase facility. Across these structures, a customer may seek a transaction (whether a sale transaction, a loan, or a note issuance, as applicable) by reference to the baseline terms in the underlying master agreement, with adjustments for each draw based on amount, timing, rate, and similar variables. A finance provider may participate indirectly in a Murabaha facility by employing conventional loan documentation for such participations where appropriate...

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Web page updated on 21/05/2026

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