muqabala

Muqabala is a concept in Islamic finance that refers to the practice of buying and selling goods or services with the expectation that the transaction will be settled in the future, typically at a predetermined price. This practice is rooted in the Islamic principle of avoiding interest (riba), which is considered usurious and forbidden in Islamic law. Instead of charging interest, muqabala transactions are structured to ensure that both parties benefit from the transaction, with the seller receiving a profit and the buyer receiving a discount.

In a muqabala transaction, the buyer pays a price that is lower than the market value of the goods or services, and the seller agrees to deliver the goods or services at a later date for a price that is higher than the market value. The difference between the purchase price and the selling price represents the profit for the seller and the discount for the buyer. The transaction is typically recorded in a muqabala contract, which outlines the terms and conditions of the agreement.

Muqabala is widely used in Islamic finance to facilitate trade and investment while adhering to Islamic principles. It is particularly common in the trading of commodities, such as gold, silver, and agricultural products, as well as in the financing of real estate and other assets. The practice is regulated by Islamic financial institutions and is subject to strict guidelines to ensure that it remains compliant with Shariah law.