What is Musawamah?
is a type of transaction in which the buyer can negotiate the selling prices with the seller. The buyer does not know the actual price paid or spent by the seller to obtain the current product, and the seller is not obliged to inform the production cost of the good. However, the seller must not hide the actual price of the product to gain excessive profit. On the contrary, the seller can use this type of transaction when he cannot determine the actual production cost.
In another word, musawamah
means bargain. A bargain (musawamah
) sale transaction occurs when a property is sold for a price mutually agreed upon by the buyer and seller without reference to its cost price. There is no obligation for the seller to disclose the cost price. If the property is sold based on its cost (the cost price is disclosed), then the transaction is called trust (Amanah) sale
There are several conditions that musawamah transactions must satisfy:
1. This type of transaction must be spot transactions. Therefore, future contracts are not acceptable.
2. The product must have tangible economic value, such as consumable goods.
3. Products must exist in the time of transactions. This transaction is not valid for goods that have not been produced yet.
Musawamah Transaction Example
Farhan plans to buy traditional clothes from local merchants wherever he travels. He likes collecting traditional garments from different countries and usually buys t-shirts, hats, or pants from local tailors in the market.
Because the clothes have particular utility and value to the buyer, and because the seller currently holds possession of the product and wants to sell his goods at present, the sale of the clothes qualifies as a musawamah
transaction under Sharia law. Therefore, the local merchant does not need to calculate and inform Farhan of the actual cost of producing the clothes. As a result, Farhan will not precisely know the merchant’s profit margin when bartering over the price.
So, both Farhan and merchants are welcome to offer their prices for clothes, negotiate, and agree on a price.
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