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Morabaha Finance

Morabaha refers to a sale transaction where the seller reaches an agreement with the buyer to provide him with a specific commodity at
a marked up price. The transaction is similar to that of a trader with the exception that the seller discloses the actual cost of procuring the
asset. The buyer then pays the sum back to the seller in fixed installments.

Basic Features of Morabaha Financing:

1. Morabaha is the sale of a commodity for a deferred price, which includes an agreed profit, added to the actual cost.

2. Morabaha can only be used to finance the client’s needs to purchase tangible commodities. Funding for other operational requirements
     cannot be met through Morabaha.

3. The commodities must be purchased from a third party. Therefore, products in the ownership of the buyer cannot be financed.

4. The discerning feature between a Morabaha and a loan is that the financing institution must bear the risk of ownership, even if for
    a short period, before transfer of ownership to the client.
5. In exceptional cases, where direct purchase from the supplier is not possible for some reason, it is allowed that the seller appoint
    the customer itself as an agent to buy the commodity on its behalf. The buyer’s possession over the commodity in the first instance
   is in the capacity of an agent of the seller. In this case, the buyer is only a trustee, while the ownership and risk vests with the seller.
   However, when the buyer purchases the commodity from the seller, the ownership as well as the risk is transferred to the buyer.

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