Challenges on Cost Plus (Murabahah) Based Financing: Zanzibar Experience

Abstract

Islamic banking products has gained a significant momentum in recent years. Murabahahis known as a one of the key Islamic financial tools. However, it is a widely adopted and controversial tool in terms of its Shariahpermissibility. Most of people argue about the resemblance with the conventional tool of finance. PBZ Islamic bank in Zanzibar uses murabahahas a mode of finance, the higher percentage in using the financial tool in PBZ Islamic bank. Murabahah is not a fully trusted tool in financing matters in Islamic banks at Zanzibar, the society believe that this tool is the same as used in conventional banks, the difference is only the names. This controversy kept the Islamic bank in Zanzibar at risk of getting new clients or losing its existing customers. This paper examined the problems faced by Islamic banks in Zanzibar through murabahahfinancing tool and discusses its key risks faced by PBZ. The methodology used in this study is in-depth interview with PBZ Islamic bank to interrogate deeply in the usage of murabahahas a financing mode. The findings reveal that most of the customers applied for the loan of the assets are money seekers whose main target is cash.