Wikipedia
Murabaḥah, murabaḥa or murâbaḥah (Arabic مرابحة) is a term of Islamic fiqh or jurisprudence for a sale where the buyer and seller agree on the markup for the item(s) being sold. In recent decades it has become a term for a form of Islamic (i.e. " shariah compliant") financing, and involves the buyer using Murabahah as a mechanism to borrow money, paying the seller (who serves as a lender) the marked up price with deferred payments. It has been called "the most prevalent" or "default" type of Islamic finance.
Because the buyer/borrower pays the seller/lender at an agreed upon higher price, instead of interest charges (which would be forbidden as riba), the contract involves "a profit on the sale of goods", which is permissible in Islam. Some conservative Islamic finance scholars consider murabaha as a "transitory step" towards a "true profit-and-loss-sharing mode of financing", and a form to be used where profit-and-loss-sharing is "not practicable."
The basis of Murabaha financing has been called " cost-plus" and is similar to a rent-to-own arrangement, with the intermediary (i.e. the lending bank) retaining ownership of the property until the loan is paid in full.
A murâbaḥah differs from conventional loans in a number of other ways. After the murâbaḥah contract is signed, the "amount being financed cannot be increased in case of late payment or default, nor can a penalty be imposed, unless the buyer has deliberately refused to make a payment". The seller also has to assume "any liability from delivering defective goods". Sources differ as to whether charges for late payments are allowed, with some authors stating late fees ought to be donated to charity. Proper Murâbaḥah involves guidelines, (such as the bank taking actual possession of the good before selling it to the customer), to ensure that a Murâbaḥah transaction is based on trade between the bank and the customer and not merely a financing transaction.
Critics/skeptics complain/note that in practice most transactions are merely cash-flows between banks, brokers and borrowers, with no buying or selling of commodities; that the profit or mark-up is based on the prevailing interest rate used in haram lending by the non-Muslim world; that "the financial outlook" of Islamic Murabaha financing and conventional debt/loan financing is "the same", as is most everything else besides the terminology used.