If you want to understand the financial models of your halal mortgage, you may have come across Murabaha and Musharaka. Both are Islamic financial investment models based on the principle of risk sharing, but have different characteristics. This article will help you understand the key differences between the two.
What is Murabaha? Murabaha is a financial instrument where a bank or financial institution buys an asset and sells it to a customer at a higher price and charges a fee for the transaction. The customer repays the asset price and the fee to the bank over a certain period of time.
What is Musharaka? Musharaka is a financial product where two or more parties provide capital to a joint venture, sharing profits and losses. The investment is part-owned and the profit is distributed based on contributions.
• Murabaha means a loan from the bank to the customer, while Musharaka means a joint venture between partners.
• Murabaha is a short-term investment, while Musharaka is a long-term one.
• Banks tend to use Murabaha more, while venture capitalists use Musharaka more.
• In Murabaha the bank is the lender and the customer is the borrower, while in Musharaka both parties are equal parties.
In summary, both Murabaha and Musharaka are popular Islamic financial products. Choose the one that suits your mortgage needs after considering the differences. If you want to know more, please contact us here.
Halal Mortgages, Legal