By far the most popular form of Islamic financing today, Murabaha involves the purchase of a given asset by the bank at the request of a client, and then selling it to the client at a price which includes the principal cost and a pre-agreed markup.
Murabaha financing differs from conventional financing techniques in a very fundamental way; it involves the financing of physical assets. The bank shares in the risk of ownership. Rather than simply advancing money to a client, the bank itself buys the goods from a third party at the request of the customer. The bank then sells it to the customer for a pre-agreed price, on deferred payment basis.