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Musawama
Practical Law Glossary Item 2-502-6329 (Approx. 2 pages)
Glossary
Musawama
Also known as musawamah, an Islamic finance term that describes a commodity trading arrangement involving the sale of an asset in which the seller is not obligated to disclose the sale price of the asset to the buyer. This differs from a murabaha transaction, where the buyer knows the sale price of the underlying asset. To be compliant under Sharia the:
- Underlying asset must exist and be in the seller's possession at the time of the sale.
- Sale must be immediate (future sale dates are void). The payment of the purchase price may be deferred, however.
- Asset must be of value and usable.
This technique is often used to structure Sharia compliant derivatives.
For more information on Islamic finance in the US, see Practice Note, Islamic Finance: US Law Overview.
For more information on Islamic finance in the UK, see Practice notes: