How Does Murabaha Work
How Does It Work with Mortgage Lenders?
- 1
Separation of Contracts: The Wakala (agency) agreement between Barakah and the Buyer must be completely independent from the Murabaha sale contract. There must not be any binding commitment to the Murabaha sale before Barakah acquires the asset.
- 2
Genuine Ownership and Risk Transfer to Barakah: Barakah, acting through its agent (the Buyer), must genuinely obtain legal and/or constructive ownership of the property before selling it to the Buyer under Murabaha. Barakah must assume all associated risks (such as loss, damage, or market changes) during its period of ownership, even if brief. The asset must truly be within Barakah's possession and risk.
- 3
Strict Sequencing of Contracts: The Murabaha sale contract (detailing cost and profit) can only be executed after Barakah has acquired full ownership and assumed all risks from the original seller. Before this, only a non-binding promise to purchase (wa'ad) from the Buyer to Barakah is allowed — not an enforceable sale contract.
- 4
Transparency of Cost and Profit: The Murabaha contract must clearly state both the original cost of the asset to Barakah and the agreed profit margin in every mortgage agreement.
- 5
Permissibility of Security and Payments: Security documents may be signed and deferred payments collected, as long as they follow a valid sale and support a mortgage structure without introducing elements of conventional interest-bearing loans.