A Review of Challenges and Solutions in the Use of Murabaha Products in Islamic Banking

Despite the explicit prohibition on charging interest, certain Islamic banks continue to rely on interest-based benchmarks as a pricing reference due to the absence of stable and widely-available alternatives. This reliance contradicts the essence of Islamic banking, which necessitates the absence of any interest-related elements in operational activities and pricing stipulations. This article addresses the challenges Islamic banks face in implementing Murabaha, an Islamic financing technique incorporating interest rates in specific pricing stipulations. To assist individuals or businesses interested in utilizing Murabaha, the article provides recommendations emphasizing the importance of understanding Islamic finance principles, complying with Shariah guidelines, researching reputable Islamic financial institutions, comparing pricing and terms, comprehending associated risks, and seeking professional advice. Additionally, the article presents a proposal to enhance the Shariah compliance of Murabaha financing. Building upon existing guidelines, the proposal suggests strengthening the cost-plus-profit structure, increasing customer involvement, promoting ethical sourcing, and facilitating greater disclosure and accountability. These recommendations aim to address potential challenges and ensure the transparency and authenticity of Murabaha transactions, aligning them more closely with Shariah principles. Furthermore, the article explores the challenges faced globally in implementing Murabaha practices in Islamic banks and proposes solutions to overcome them. Adherence to Islamic principles, including transparency, ethical sourcing, and equitable decision-making, is essential in Murabaha transactions. However, issues such as lack of standardization, limited expertise, and inadequate regulatory frameworks hinder the effective implementation of Murabaha. Proposed solutions include developing international standards, enhancing training and expertise, and strengthening regulatory frameworks. Implementing these solutions will improve Murabaha practices, fostering the growth and stability of the Islamic finance industry. Lastly, the article examines Islamic banks’ challenges in setting benchmark prices for Murabaha practices and proposes solutions to address this issue. Transparent pricing based on ethical and Shariah-compliant principles is essential for Murabaha, yet the need for readily available reference benchmarks poses challenges in ensuring fairness, consistency, and market competitiveness. The proposed solutions include developing standardized pricing benchmarks, industry collaboration for data sharing, and regulatory initiatives to promote transparency and accountability. Implementing these solutions will enhance the effectiveness and credibility of Murabaha practices worldwide, benefiting Islamic banks and the broader Islamic finance industry.