Last updated 14 November 2026 · Reviewed by Riyadh Financial Services Compliance
At a glance
- Murabaha is a cost-plus sale: the cost and the mark-up are both disclosed and agreed at the start.
- In its classic form, the sale price is fixed when you agree to it, so it doesn't change over the term.
- Ijarah is different: it's a lease, and the financier's return is rental on a real asset.
- For a side-by-side look at the main structures, see Ijarah vs Murabaha.
What does Murabaha mean?
Murabaha comes from the Arabic word for profit, and it describes a sale at cost plus an agreed mark-up.
Islamic finance avoids riba, which is any increase charged for lending money for money. Trade is permitted, so a seller can earn a profit by selling something for more than it cost. Murabaha applies that principle to finance: instead of lending you money to buy an asset, the financier buys the asset and sells it to you on agreed terms.
How does a Murabaha sale work?
In general terms, a classic Murabaha follows these steps.
- You choose the asset you want and agree to buy it from the financier.
- The financier buys the asset, so it owns it before it sells it to you.
- The financier sells the asset to you at its cost plus a mark-up. Both are disclosed and agreed at the start.
- You pay the sale price in instalments over an agreed term, and the asset is yours once the sale to you is complete.
Because the sale price is agreed upfront, the amount you owe under a classic Murabaha is fixed at the start. Some providers use variations, so read how payments are set in their documents.
Where is Murabaha used?
Murabaha is one of the most widely used contracts in Islamic finance around the world. It's commonly used for:
- trade finance, where a business needs goods or stock;
- buying equipment and other assets for a business;
- property finance in some markets.
In Australian property finance, you'll also hear about Ijarah and Diminishing Musharakah. Each one earns the financier's return in a different way, so it's worth knowing which structure a product uses before you compare.
How is Murabaha different from Ijarah?
The main difference is the type of contract: Murabaha is a sale, while Ijarah is a lease. The table compares them in general terms.
| Question | Murabaha | Ijarah (our Ijaar home finance) |
|---|---|---|
| What it is | A sale at cost plus an agreed mark-up | Ijarah Muntahia Bittamleek, a lease that ends in ownership |
| Where the financier's return comes from | The mark-up (profit) on the sale | Rental for the use of its share of a real property |
| Can payments change? | In its classic form, the price is fixed at the start | The rental rate can be variable, or fixed for a period on selected Ijaar home finance |
| Ownership | The asset is yours once the financier sells it to you | You're the registered owner on the title from settlement, and the financier's ownership share passes to you when all payments are made |
| With Riyadh FS | Not offered | Ijaar home finance for homes and investment property |
For a fuller comparison that also covers Diminishing Musharakah, read our Ijarah vs Murabaha guide.
Why does Riyadh Financial Services use Ijarah instead?
Ijarah links the financier's return to rent on a real asset, the property you live in or invest in, and it allows a variable rental rate, or a fixed rental rate for a period on selected Ijaar home finance.
With our Ijaar home finance, the financier appoints you as its agent (wakeel, under a Wakalah agency agreement) to buy the property on its behalf. You're the registered owner on the title from settlement. The financier holds a registered mortgage and a beneficial interest (an ownership share), which passes to you when all payments are made. Our guide to how Islamic home finance works explains this step by step.
What are the pros and cons of Murabaha?
Possible pros
- The return comes from a genuine sale of a real asset, not riba.
- In its classic form, you know the full sale price from the start.
- It's a simple idea to understand: a sale at cost plus a disclosed mark-up.
Possible cons
- A fixed sale price means your payments don't fall if market conditions change.
- Providers use variations, so you need to read how each product actually works.
- Approval isn't certain with any Islamic finance: every application is assessed against credit criteria.
How do you compare Islamic finance structures, step by step?
- Talk to a broker about what you want to buy. If you don't have a broker, contact us and we can refer you to an accredited broker.
- Ask which contract each product uses, and where the financier's return comes from.
- Ask how payments are set and whether they can change over the term.
- Compare the total cost, including fees, not just the rate.
- Ask to see the current Shariah certificate and what it covers, and seek your own scholar's view if you'd like a religious ruling.
How can Riyadh Financial Services help?
Riyadh Financial Services arranges Shariah-compliant property finance through accredited mortgage brokers. Accredited brokers must act in your best interests under Australian credit law (the best interests duty), and they work across Australia, in person or online.
- Ijaar home finance for a home to live in or an investment property.
- Refinancing to Ijaar home finance.
- Al-Mustaqbal SMSF finance for self-managed super funds buying commercial property, using Diminishing Musharakah, a partnership in which one partner gradually buys out the other's share. Neither Riyadh Financial Services nor brokers give SMSF advice. Speak to a licensed financial planner or an accountant licensed to give SMSF advice.
Our product structures are reviewed by our independent Shariah adviser. Ask us for the current Shariah certificate and what it covers. We explain how our structures work, but we don't give religious rulings, and you're always welcome to seek your own scholar's view.
Keep reading:Ijarah vs Murabaha · How Islamic home finance works · Ijaar home finance