Misused murabaha hurts industry

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.

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