General

What is Murabaha?

In a Murabaha transaction, an individual/entity approaches an Islamic financial institution/Liquidity Provider in order to obtain finance. Instead of directly lending money, the institution/LP purchases a commodity or asset on behalf of the borrower, and then sells it to the requesting party at a predetermined markup, effectively constituting a fixed profit. The entity/individual agrees to repay the institution in instalments or in full no later than some expiration date.

For example, consider a individual in need of $1,000. The Islamic financial institution would acquire a trade-able and relatively liquid asset, such as palladium or wheat, valued at $1,000. They would then sell the asset to the borrower for $1,005 in the form of a deferred payment, to be settled in one month. The individual can subsequently sell the asset on the open market for $1,000, effectively obtaining the needed funds. This arrangement allows the financial institution to earn a profit without charging interest, and the individual to obtain financing in accordance with Islamic principles.

High Level overview of AZKA Token Murabaha:

Traditionally, commodities have been used as the subject matter of a Murabaha sale transaction. . However, in coneventional Islamic Finance, Equity (shares) have also been used as the subject matter of Murabaha and specific rights such as trademarks, franchises, trade licenses, intellectual property, publishing rights, and governance rights can also serve as the subject matter of a Murabaha sale.

AZKA's approach, while simple, has undergone rigorous Shariah-based assessment. It revolves around the use of Shariah-compliant governance tokens and other digital assets as the subject matter of the Murabaha purchase. This Murabaha purchase is facilitated using Shariah-compliant cryptocurrencies and payment tokens. As a result, the debt incurred by the Murabaha taker is denominated in the cryptocurrency or payment token used for the transaction.