Dr. Monzer Kahf, a prominent economist and counselor, states: “Mark Up financing, in its correct form, is permissible and is called in Arabic murabahah. It is defined as follows: a transaction between the bank and a customer that consists of a memorandum of understanding in which the customer requests the bank to buy a commodity on a cash basis and promises to buy it at a higher price and deferred payment or on installment. The second contract is concluded after the bank actually buys and takes delivery of the merchandise. It is an Islamically acceptable alternative to interest-based lending. Its essential value (and consequently permissibility) comes from the fact that it is a sale, not lending, and that by this route of financing you are preventing interest-based rescheduling of debts and debt discounting, inter-bank reshuffling of debts (very often called financial assets while they are only debt or monetary nominal assets), and parasitic lending that is not strictly purposed for production or exchange.
In Pakistani banks, Mark Up used to be practiced as a formality only. (The financing contract used to read: It is deemed that the bank bought the commodity and it is deemed that it sells it to the customer; and then cash money is given to the customer and she/he is required to pay the higher amount later.) This is, among other things, one major reason that called for the objection to the Supreme Court and the issuance of its famous 1999 ruling that was changed lately by pressure from the present Pakistani government.”
