Misused murabaha hurts industry
A commonly used Islamic finance product could cause the downfall of the industry because it is being used inappropriately, a senior banking figure has claimed.
Islamic banks often use commodity murabaha agreements to invest their surplus cash in a Shariah compliant way. This involves buying into a basket of commodities, such as metals, held by another bank for a pre-determined amount of time and a pre-determined return.
However, in practice, many of the transactions never see any commodities change hands and sometimes there are no commodities involved, merely cash flows between banks and brokers.
Islamic Finance Resource 