Trade-based Financing Murabaha (cost-plus Sale)

The early models of Islamic banks are based on partnership of mudharaba and musharaka (profit-loss sharing) structure. Such equitybased financing are perceived to be superior to conventional financing from the standpoint of robustness to external shocks and from the standpoint of ethics, fairness and social justice. Where profit-loss sharing mechanisms cannot be used, Islamic banks provide other contracts and services that are legally binding and lawful under Shari'a law and Islamic principles. Subsequent models of Islamic banks use an expanded framework and include debt-based mechanisms, such as, murabaha, bay'-bithaman-ajil (BBA), ijara, salam, istisna', istijrar and qard-hasan. The list also includes debt-products that involve tawarruq, bay’-aldayn, and bay'-aleinah, that are either rejected or at best deemed controversial by mainstream Islamic scholars.