Murabahah or murabaha (Arabic مرابحة, more accurately transliterated as murābahah) is a particular kind of sale, compliant with shariah, where the seller expressly mentions the cost he has incurred on the commodities for sale and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. As the requirement includes an "honest declaration of cost", murabahah is one of three types of bayu-al-amanah (fiduciary sale). The other two types of bayu-al-amanah are tawliyah (sale at cost) and wadiah (sale at specified loss).
It is one of the most popular modes used by banks in Islamic countries to promote riba-free transactions. Different banks use this instrument in varying ratios. Typically, banks use murabahah in asset financing, property, microfinance and commodity import-export.
The seller may not use murabahah if mudarabah or musharakah is practicable. Since those profit-sharing modes of financing involve risks, they cannot guarantee banks any income. Murabahah, with its fixed margin, offers the seller (i.e. the bank) a more predictable income stream. A profit-sharing instrument, conversely, is preferable as it shares the risks more equitably between seller and buyer.