Pricing of Murabaha: Issues and Insights

Abstract

The pricing mechanism is an important area that needs to be investigated in Islamic banking especially for the murabaha, the most financing tool. The main objective of this paper is to examine the pricing of murabaha and to try to propose a new pricing alternative. We note that the conditions of the fixation of mark-up in murabaha enlighten on the pricing process and the issues of the consideration of time value of money and the choice of benchmark. We propose to adopt an Islamic RAROC and to consider a new benchmark based on sukuk, specifically sukuk murabaha. This allows a marketable reference. Indeed, sukuk is the dynamic Islamic capital market. Moreover, this proposed benchmark has a strong relationship with the real sector.