Mark Up or Cost Plus Financing Contracts
Buddy, do you know what contract (akad) means? When we make a commitment and the commitment implies rights and obligations, it is a contract (akad). In sharia banking there are several types of contracts (akad) under which an agreement with a customer is made. One of them is mark up or cost plus financing (murabahah) or bank financing under a contract of sale.
Well, this contract usually aims to buy houses, vehicles, or other goods for the purpose of housing financing, for example.
A customer comes to the Bank to apply for housing financing. The Bank buys a house and sells it to the customer at a profit margin. So the customer buys a house at a cost price plus bank’s profits as mutually agreed upon. The customer then pays for the house in installments under the pre-agreed term.
What percentage of the margin does the bank charge? It depends on the individual banks. The bank has counted in the elements of costs, risks, and others.