Musawamah Facility

Definition of "Musawamah Facility"

It is a financing technique being used by some Islamic banks. Under this mode, the customer requests the bank to purchase a specified quality and quantity of a commodity or product. The commodity remains in the possession of the bank and the client keeps on taking its delivery at a notional price. The notional price usually is fixed by keeping in view bank’s margin. The period of transaction is usually 180 days. As a security for the due and prompt performance of all obligations, the bank obtains a collateral.