The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.
Question:: Is the following transaction classified as Murabahah? If not, is it permissible? I invest a certain sum of money in a company to procure certain raw materials for a fixed rate of return and for a turnaround time of one month. The capital gets re-invested every month and I receive the income monthly as well.
Answer: While murabahah is a form of inventory financing, the form you suggest in your question is not murabahah. Please turn to Lesson Five: Islamic Financing and Partnerships, and read the section there entitled: Asset-backed Financing. Without knowing the details of the arrangement you outline in your question, it appears to me, from your statement that the rate of return on your investment is fixed, that the arrangement is essentially a loan. From your readings in Lessons One and Two of the course, it should be clear to you that to profit from a loan is riba and clearly prohibited by the Shari`ah.