Any Difference Between Murabaha in Islamic Banks and Conventional Bank Loan?

Regarding the difference between Murabaha which is wildly practiced in Islamic Banks and conventional bank loan, Dr. Monzer Kahf, Scholar in Islamic Economics an a Financial Expert, stated:

“It is not easy to explain this complicated matter in a few line of Fatwa, however, in brief, a commodity has different prices, genuinely depending on the date of payment and date of delivery. The cash price of a commodity is not the same as its price when payment is deferred. That is the basis of Murabaha. On the other hand a debt does not have the same characteristic because a debt does not create any intrinsic utility. Interest is an increment in a debt, while the mark up profit in Murabaha is a price differential caused by the deferment of payment.

Our sharia does not prohibit financing; it prohibits financing through lending on interest. The result of this difference is not as small as one may quickly think. Eliminating financing through loans and channeling it only through Murabaha means that all financing shall be for real transactions, for goods moving from one hand to another. That is real development. When you do it through loans that is not necessarily the case. We noticed in the current crisis that there were many pure debt transactions that caused the melt down and its spread, these transactions do not take place under Murabaha. For more info please make more reading or take a class in Islamic finance.”