Murabaha Explained in 5 Easy Steps
Muhammad and his family would like to purchase a condo which costs $240,000. To do so, Muhammad would work with Devon Islamic to purchase the condo. Devon Islamic would purchase the condo for Muhammad from the seller for $240,0000 and sell it to Muhammad for $286,000 to be paid in monthly installments over a 15-year period. The scheduled monthly payment not including insurance and taxes would be $1,586.21. The $286,000 that Muhammad would pay for his condo would be a fixed amount to Devon Islamic which owns the home now. The extra amount Muhammad pays along with the cost of the condo listed by the seller is a 2.375%(APR)* profit rate which is not interest as it is offered as a fixed payment without any additional costs, hence making this transaction Shariah compliant. While late charges may be applicable but contract balance is not compounded.
*Rates are subject to change & financing subject to approval. Payments do not include amount for taxes and insurance premiums.
*APR = Annual Percentage Rate