Journal of Legal, Ethical and Regulatory Issues (Print ISSN: 1544-0036; Online ISSN: 1544-0044)


Murabahah Versus Bank Loan: Concept of Interest and Profit

Author(s): Shafiqul Hassan

The primary objective of this paper is to lucidly explicate on the concept of murabahah and bank loan as well as to clarify the likely ambiguities emanating from the practice of murabahah by Islamic banks and loan by conventional banks. Descriptive content analysis is employed by reviewing classical and modern literatures on the practice of murabahah. The findings indicate that, murabahah is used on sale in attaining profit rather than on sale. It is also shown that, murabahah is grounded by Shariah. Indeed, financial transactions under the explanation of Maqasid al-Shariah by Ibn Ashur is used theoretical framework which is directly or indirectly linked with the practice of murabahah. The result shows the concept of murabahah from Islamic banking is different from the concept of interest practiced by conventional banks. The finding further indicates that, the extra charge added at the initial time of purchase of a particular product is not prohibited in Islam, but failure to pay the agreed amount on the fixed date by the buyer is undeniably regarded as forbidden usury based on the reference to Q 2:275. It is reiterated that, that Islam is permits the standard sale of a particular product whereby a product is bought with a price and sold with an increased price. In conclusion, the paper has established the viability of the murabahah transaction as a mechanism in promoting Islamic financial system. It is recommended that Islamic banks should device more mechanisms such as interbank benchmark rate in order to practically demonstrate the authenticity of Islamic financial system in the contemporary time specifically in making murabahah compliant with Maqasid al-Shariah on financial transactions.

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