A Critical Study of the Application of Murabaha in Islamic Financing

Islamic financing instruments conform to Islamic law and the local rules of Islamic countries. Therefore, countries with Muslims as a majority try to spread their use. In a short time, they attracted the attentions of investors and savings account holders with different tastes so much so that it became an alternative to common financial instruments. Murabaha is an Islamic financing instrument. With a 67% growth rate, it is the most prominent and well-known financing instrument among Islamic banks. Murabaha was also approved by the Islamic Consultative Assembly of Iran in Article 98 of Development Plan Law in 2010. It was then approved by the Guardian Council. Its executive regulations were approved by the Money and Credit Council in August 16th, 2011. Later, the CEOs of governmental and non-governmental banks, the Post Bank of Iran, and financial institutions were notifed of the law. Despite its benefits, including being the most applicable financing method, having a higher contribution compared to other contracts with fixed returns, appropriate variety to fulfill the tastes of investors, and a lower risk compared to other contracts, it is criticized by some economic activists. For instance, it is criticized as being against the general spirit of Islamic banking and, generally, Islamic financing. Moreover, they object to spreading its use among all contracts used in financing. They consider it as a big risk for other contracts with expected returns. With a descriptive and content analytical method and using library resources, this paper aimed at proving that financing using murabaha contracts not only conforms to the general Islamic spirits, but also is one of the most prominent Islamic financing methods. It also fulfills the expectations of various investors and is in line with other contracts with fixed and expected returns.