Commodity Murabaha
مرابحة السلع
Pronunciation: moo-RAH-bah-hah as-SIL-ah
A Murabaha transaction using commodities (often metals) as the underlying asset to facilitate cash financing.
Definition
A variation of Murabaha used to provide cash financing. The financier purchases a commodity (typically metals on the London Metal Exchange) and sells it to the client at a markup on deferred terms. The client then sells the commodity for cash to a third party at the current market price, receiving the cash they need.
Also known as Tawarruq when structured through a third-party sale. Widely used for personal financing and treasury management in Islamic banking.
How Commodity Murabaha Works in Practice
Commodity Murabaha — Tawarruq in classical terminology — is how Islamic banks manufacture cash financing out of sale contracts. The sequence: the bank buys a liquid commodity (LME metals, palm oil), sells it to you at cost plus a disclosed markup payable in installments, and you (usually via the bank as your agent) immediately resell it to a third party for cash. You end up with money today and a fixed obligation tomorrow; the bank earns the markup instead of interest.
AAOIFI's Shariah Standard No. 30 permits Tawarruq only with real commodities, genuine sequential ownership transfers, and no pre-arrangement between the legs — and the OIC International Islamic Fiqh Academy went further in 2009, ruling 'organized Tawarruq' impermissible because pre-programmed legs make the commodity a formality. That tension defines the product: it is the workhorse of interbank liquidity and personal financing in Saudi Arabia and Malaysia, yet the most criticized mainstream structure in Islamic finance. In the U.S. it appears mainly in Shariah-compliant business credit and some personal financing programs.
The consumer test scholars recommend: ask who owns the commodity, for how long, and whether you could take delivery — if the answers are 'nobody, momentarily, no,' rigorous boards would not sign off.
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Commodity Murabaha (مرابحة السلع) — A Murabaha transaction using commodities (often metals) as the underlying asset to facilitate cash financing. A variation of Murabaha used to provide cash financing. The financier purchases a commodity (typically metals on the London Metal Exchange) and sells it to the client at a markup on deferred terms.
- A Murabaha transaction using commodities (often metals) as the underlying asset to facilitate cash financing.
- Category: Financing Structures
- Related: Murabaha, Tawarruq
- Compare related Shariah-compliant products on HalalWallet
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Reviewed by: HalalWallet Editorial Team
Last reviewed: 2026-08-01
Editorial Team, HalalWallet
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