Mark Up or Cost Plus Financing Contracts

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.

BSM Editor