Murabaha in the UAE: How Islamic Cost-Plus Finance Works Under UAE Law

Direct answer. A murabaha is a cost-plus sale, not a loan. Under the UAE Commercial Transactions Law, Federal Decree-Law No. 50 of 2022, the bank first buys and owns the asset you asked it to finance. It then sells it to you at its cost plus a fixed profit stated in the contract (Article 481). Once signed, the price is fixed: Article 482 says it may not vary or be tied to an indicator, though you can pay in instalments. The same law bars an Islamic bank from charging late-payment interest, even when it is called compensation, and from increasing the debt when a due date is pushed back (Articles 473 and 474). You will often meet it in Islamic car and personal finance; home finance is often ijara or diminishing musharaka, so check which contract your offer uses.

What a murabaha agreement is under UAE law

Since 2 January 2023, murabaha has been a named contract in UAE commercial law. Book Three, Part Six of the Commercial Transactions Law (official text), Articles 468 to 497, sets special rules for Islamic financial institutions. Section Three of its Chapter Two, Articles 481 and 482, covers murabaha. The law has a second Part Six, on commercial agency, in Book One; that one is unrelated.

Article 481 defines a murabaha in four parts:

1. A seller sells an asset to a buyer. Here, the bank sells and you buy.
2. The seller owns and possesses the asset first, actually or constructively.
3. The sale follows your finance application.
4. The price is cost plus a fixed profit sum set out in the contract. That total is the murabaha sale price.

Under Article 482, once the contract is concluded the price "may not be variable or associated with an indicator or otherwise". You can pay it in instalments of a set amount on set dates, or in one payment on a fixed date.

The civil-law layer

The new Civil Transactions Law, Federal Decree-Law No. 25 of 2025, came into force on 1 June 2026 and replaced Federal Law No. 5 of 1985. Its Article 461 also defines murabaha as a sale at the original purchase price plus a specified profit, and requires that original price to be known. If the seller overstated the cost without justification, the buyer may deduct the excess. If the cost was unknown, or the seller concealed something affecting the item or its cost, the buyer may rescind on learning of it. That right lapses if the item perishes, is consumed or is disposed of after delivery.

Two cautions. The new law is not retroactive (Article 4), so a contract signed before 1 June 2026 may still fall under the previous Civil Transactions Law; ask a lawyer before relying on Article 461 for an older contract. And under Article 4 a special provision prevails over a later general one where they conflict, so the bank-specific rules stay the starting point.

Who the rules cover and where you will meet a murabaha

Book Three, Part Six applies to contracts to which an Islamic financial institution is a party (Article 468). That includes a conventional bank for the part of its business it runs under Sharia, often called an Islamic window.

Typical uses:

• Car finance. The bank buys the car from the dealer, then sells it to you at a marked-up price in instalments.
• Personal or cash finance (commodity murabaha, or tawarruq). Many banks buy a commodity, sell it to you on deferred terms, then sell it on your behalf for cash; your sale and agency documents show the exact steps.
• Home finance. A murabaha can cover real estate, but home finance is often offered as ijara or diminishing musharaka. The contract title and the Key Facts Statement tell you which you have.

Sukuk murabaha is a capital-markets instrument, not retail finance, and is outside this guide.

Who supervises Islamic banks

The current Central Bank law is Federal Decree-Law No. 6 of 2025, on LEXAI as the Central Bank law. Article 24 sets up the Higher Shari'ah Authority, attached to the Central Bank. It sets the Sharia standards for Islamic finance, and its resolutions bind Islamic banks and their internal Sharia committees. Each bank's Internal Shari'ah Supervision Committee approves its products and contracts (Article 75).

Under Article 471 of the Commercial Transactions Law, the Central Bank's Board issued Regulation No. 1 of 2026 for Islamic financial institutions, published in Arabic on the Central Bank Rulebook. It gives banks one year from issuance and publication to comply, so treat its clauses below as rules banks are aligning to, not guaranteed terms of every existing contract.

What a UAE murabaha agreement contains

A murabaha finance is usually a small set of documents, not one contract. Expect to see:

• The parties and the asset. The bank as seller, you as buyer, and a description of the car, goods or property being sold.
• The bank's ownership. The bank must own and possess the asset, actually or constructively, before it sells it to you (Article 481).
• Cost, profit and total price. The bank's cost, the fixed profit and the murabaha sale price, which cannot change once the contract is concluded (Articles 481 and 482).
• The instalment schedule. Instalments of set amounts on set dates, or one payment on a fixed date (Article 482). Under the 2026 regulation, instalments need not be equal. The Consumer Protection Standards also require a repayment schedule at signing that shows, where applicable, how each instalment is allocated between principal and profit.
• The promise document. If you sign a promise to buy, it states whether the promise binds you. Under the 2026 regulation, it binds you only if it says so, and no fee may be charged for it.
• Sale and agency papers for a commodity murabaha. Where cash finance runs through a commodity, these documents record each purchase, sale and agency step.
• Late-payment clauses. Usually a commitment to donate to charity, plus recovery of actual direct collection costs under the 2026 regulation. Late-payment interest is barred (Article 473).
• Security. Any security cheques or other Sharia-acceptable security under the 2026 regulation, within the cheque limits in the Consumer Protection Standards.
• The cooling-off clause. The Standards say Sharia contracts should include a cooling-off option of 5 complete business days.

Before you sign, you also receive the Key Facts Statement, which must include a worked early-settlement example.

A simple illustration

These are hypothetical round figures, not a market rate. The bank buys a car for AED 100,000, and the contract states a profit of AED 15,000. The murabaha sale price is AED 115,000, payable in the instalments the contract sets. If market rates later rise or fall, the price stays AED 115,000 (Article 482). If the due dates are later deferred, that debt cannot be increased (Article 474).

How a murabaha finance runs, step by step

1. You choose the asset and apply. You may ask the bank to buy from a named supplier. Under the 2026 regulation, the bank may decline to proceed if you refuse a supplier offer that is better for the bank.
2. You receive the Key Facts Statement. Under the Central Bank's Consumer Protection Standards, it should be the first document you get, and you must sign to acknowledge receiving it before you sign the contract. It must include a worked early-settlement example.
3. You may sign a promise to buy. Under Article 475, a promise binds only the person who made it. Under the 2026 regulation, your wish to buy is not a binding promise unless the signed promise document says so, and no fee may be charged for the promise.
4. The bank buys the asset. Under the 2026 regulation, ownership passes to the bank when it signs its purchase contract, without waiting for registration, and the bank may buy with an option period so it can return the asset if you do not proceed.
5. The bank sells the asset to you. You sign the murabaha contract with the fixed price and instalment schedule. Under the 2026 regulation, instalments need not be equal. Your repayment schedule must still show, where applicable, how each instalment is allocated between principal and profit (Consumer Protection Standards).
6. The cooling-off window runs for 5 complete business days.
7. You repay. On early payoff, remaining security cheques come back within 7 complete business days.

If you break a binding promise without an acceptable excuse, Article 475 limits the bank's compensation to the direct actual damage it suffers. The 2026 regulation adds that the bank cannot force the purchase, cannot claim cost of funds or lost profit, and cannot fix the amount in advance.

The dealer trap

Under the 2026 regulation, if you accept the supplier's offer before the bank buys, the sale is concluded between you and the supplier, and the bank may not then sell you that same asset on murabaha. An existing contract between you and the supplier must be rescinded; assigning it to the bank is not enough. If a dealer asks you to sign a purchase agreement in your own name first, ask the bank how that affects the murabaha.

What a fixed price means when things change

If market rates move. Your price does not move in either direction (Article 482).

If you pay late. Article 473 bars interest on an overdue sum, "including a late payment interest even if by way of compensation", and voids any contrary agreement. Islamic contracts often use a commitment to donate instead: you undertake to pay an amount to charity if you pay late, and the bank may not benefit from it. Under the 2026 regulation, the bank may also recover actual, direct collection costs in line with Higher Shari'ah Authority resolutions.

The Consumer Protection Standards add controls. The bank's Sharia committee must make sure the charity obligation is not abused, and that it is not applied to a customer who is insolvent or bankrupt rather than a mumatil. The Consumer Protection Regulation defines a mumatil as a debtor who refuses to pay a due debt without a legitimate reason after a demand for payment. The Standards also require the bank to tell you when a late-payment fee or charity commitment will be imposed, the amount and how it is calculated. The fee or commitment must be based on an administrative cost and must not include any remuneration to the bank. The amount, and any cap, is set by the Central Bank's rules and your contract; confirm it in your Key Facts Statement.

If you need more time. Article 474 says these debts "may not be increased where their maturity dates are deferred", so a rescheduling moves dates only. New finance to clear the old one is a separate contract with its own price. See our guide to loan deferral rules.

If the bank asks for security. The 2026 regulation allows Sharia-acceptable security. In retail finance this can include post-dated security cheques, which the Consumer Protection Standards limit (see below).

Fees, cooling-off, early settlement and cheques

The Central Bank's Consumer Protection Regulation and Standards remain in force under Article 183 of Federal Decree-Law No. 6 of 2025 until replaced. For Islamic finance they require:

• Plain explanation. The bank must explain how Islamic and conventional products differ and the contracts' legal consequences, and show its Sharia certificates.
• Disclosure. The Key Facts Statement must show late-payment fees, early settlement fees and any commitment to donate.
• Cooling-off. 5 complete business days after signing, waivable only by a signed written waiver carrying a warning. If you withdraw, fees are refunded less disclosed, reasonable direct costs.
• Early settlement. An Islamic bank may charge an early settlement fee only for the actual costs early settlement causes, under Higher Shari'ah Authority resolution No. 76/3/2019. The Standards bar charging profit on accrued profit. Their separate ban on charging "future unearned interest" after full early settlement is worded for interest. In a murabaha the profit sits inside a fixed sale price, so how much of the remaining profit is waived when you settle early is set by Central Bank and Higher Shari'ah Authority rules and your bank's terms. Those rules let the Central Bank require the bank to waive part of the outstanding debt. The figure can change; check the worked early-settlement example in your Key Facts Statement or ask a licensed UAE lawyer.
• Moving banks. Transfers to another UAE bank must happen without undue delay; an early settlement fee may apply. See debt consolidation options.
• Security cheques. Only enough post-dated cheques to cover the instalments, worth no more than 120% of the financing. Signed blank cheques are prohibited, and you get stamped photocopies. See post-dated security cheques and the security cheque definition.
• No unreasonable fees, under the Regulation.

The Standards' annex lists maximum retail fees, including:

For Islamic banks the actual-cost rule also applies; how the late-payment ceiling interacts with a commitment to donate is not stated. The figures are set by the Central Bank and can change; confirm current values in your Key Facts Statement. Check affordability first against the debt burden ratio rules.

Murabaha compared with ijara, diminishing musharaka and a conventional loan

In an ijara, the lessor pays basic maintenance and insurance (Article 495). In a diminishing musharaka, losses follow capital shares, and you cannot be made to guarantee the bank's share against loss without fault.

Common mistakes with murabaha finance

• Signing with the dealer first. It can make a murabaha on that car impossible, as explained above.
• Expecting the price to follow the market. It is fixed both ways.
• Treating any reschedule as free. The same debt cannot grow, but new finance carries its own price.
• Skipping the Key Facts Statement, where the early-settlement example and donation terms sit.
• Handing over a signed blank cheque. The Standards prohibit it; ask for stamped copies of every cheque you give.
• Missing the cooling-off window. Five complete business days pass quickly, and a signed waiver ends the right.
• Arguing later that the contract was not Sharia-compliant. The 2026 regulation says no party may later argue that a transaction is not Sharia-compliant if it was made under any one or more of: the Islamic-finance part of the Commercial Transactions Law, the regulation, Higher Shari'ah Authority standards and resolutions, or the bank's own Sharia committee rulings, where these do not conflict with the higher sources. Build a dispute on the contract and the statute instead.
• Ignoring arrears. Unpaid finance can lead to a court claim and a presented security cheque. Read about dealing with debt collectors, being stopped at the airport over a loan default and travel bans linked to bounced cheques.

If something goes wrong: complaints and next steps

Start with the bank. Under Article 148 of Federal Decree-Law No. 6 of 2025, it must decide on your complaint and give written reasons for a rejection. You can then go to Sanadak, the Central Bank's independent complaints unit. For disputes up to AED 100,000, the bank cannot challenge Sanadak's decision. Above that, a decision can be challenged before the Court of Appeal within 30 days.

Keep the Key Facts Statement, promise document, the bank's purchase invoice if you were given it, contract, schedule, cheque copies and correspondence.

For the wider picture, read our UAE banking and finance law guide. If the amount is significant or you face a claim, speak to a lawyer who handles banking and finance or debt recovery.

This is general legal information, not legal advice. Confirm current procedure with the relevant authority or a licensed UAE lawyer.