Pricing of shariah-compliant financial products has followed a similar track to pricing conventional products. The readers at this stage should not be surprised at the similarities by now. However, the legitimacy of a shariah-compliant product does not lie in its pricing but in the rights extended to parties to a contract and the obligations arising from the same. If these rights and obligations are shariah-compliant, the contract and hence the product is compliant. Price is not a litmus test. Income sharing is another crucial aspect of Islamic banking and we explore this concept along with risk sharing in this chapter.
The price of any product is primarily a function of its cost. Other factors, such as demand, greatly impact the price of a product as well. A company that manufactures shoes, for instance, would incorporate into the price of one shoe the following five elements:
The sum of the above factors would resemble a murabahah