Islamic finance and factoring: the Murabaha mechanism in practice
How a factoring mechanism can be Sharia-compliant by removing interest (riba) and switching to commission-only Murabaha pricing.
The context: why this option?
Several OHADA countries have a significant share of population whose financing choices are driven by Sharia compliance. Senegal, Mali, Guinea, Niger, Chad — Islamic finance penetration is growing. Same applies to diaspora in the Gulf or Europe.
Traditional factoring is not compliant: it implicitly remunerates the financier through interest (riba) on time elapsed. For a similar mechanism to be Sharia-compliant, it must be restructured under a recognised scheme — typically Murabaha.
The Murabaha scheme applied to factoring
Murabaha means "cost-plus sale". Adapted to factoring:
- The investor purchases the receivable from the supplier at an agreed price (the "purchase price").
- At maturity, the end buyer (invoice debtor) pays the nominal amount to the investor.
- The difference between purchase price and nominal is the markup, known upfront — independent of time elapsed (no accruing interest).
No compound interest, no variable late penalty, no time-proportional fee. Price is fixed, markup is disclosed, contract is executed.
How Tauraco operationalises it
The Murabaha (commission-only) mode is activated at the supplier framework agreement level:
- Pricing expressed as a single fee (no bps-per-day, no APR)
- No variable penalty if maturity is delayed — the receivable stays due at nominal
- Contract documentation reviewed by a partner Sharia committee (qualified firm)
- Full transparency on the markup to all parties
What it changes technically
On the platform, the numbers shown to investors change slightly:
| Mode | Display | Calculation |
|---|---|---|
| Conventional | Yield 9.4 % APR | Annualised over 365 days |
| Murabaha | 1.8 % markup per cycle | Fixed, time-agnostic |
At similar size, the investor receives a similar markup — but the contractual mechanism is fundamentally different.
Caveats and clarifications
Compliance validated by whom? Tauraco partners with an external Sharia firm (specified in contracts). No fintech can self-declare compliant without validation by an independent Sharia committee.
Availability. Murabaha mode is enabled on request for suppliers and investors who opt in. Conventional mode remains the default.
No double standard. A single investor can fund some invoices in Murabaha and others conventionally. Tauraco records the classification at the transaction level.
Going deeper
- Read the factoring primer
- See OHADA compliance
- Visit the marketplace: /market