An Islamic Finance concept that is governed by Shari'ah principles. It is a contract between Mutahid DFI and its client, by which Mutahid DFI purchases goods and then sells them to the client at a cost that includes a profit margin. The contract requires specific installment payments to Mutahid DFI. This arrangement allows us to avoid charging interest, which is forbidden under some interpretations of Islamic law.
Islamic microfnance in Afghanistan commenced as a demand-driven initiative through multiple dialogues with religious scholors and market surveys undertaken in local communities to understand fnancing requirements.
Murabaha is the most popular and fexible Shari'a-compliant structure. It is used in microfnance activities across Bangladesh, Indonesia, Iraq, Sudan, Syria and Yemen as well as Afghanistan. Murabaha is recognized as a fnancing scheme for start-ups and small companies whose businesses involve the sale and purchase of commodities. It is for those which do not have suffcient surplus funds to be credibly investing in commodities. Murabaha involves a fnance party ( Mutahid DFI) purchasing tangible assets from a seller and then re-selling them to a buyer ( microfnance client) at a predetermined proft margin or mark-up. In Afghanistan, Shari'a compliance as approved by religious leaders requires the buyer to settle the marked-up purchase price by way of installments across an agreed upon period (typically one year for microfnance). Murabaha is relatively easier to manage and ensures the capital needs for potential micro-entrepreneurs and the poor.