In the Last decade, the Islamic Finance market has grown significantly, and attracted several investors. However, the profitability of Islamic financial products remains one of the main concerns of portfolio managers as well as investors. Among the products that are mostly offered by the Islamic banks is the Murabaha in which return can not only be known but also guaranteed owing to the low efforts and costs invested. Indeed, the profit margin has a great importance in the elaboration of the Murabaha contract, and stands out as one of the main components of profitability from a commercial viewpoint. In this article, we propose a new approach to estimate the profit margin of Murabaha using the stochastic process and portfolio techniques. The aim is to determine an interval allowing Islamic banks to anticipate and check their profit margin in order to ensure the profitability of the Murabaha investment. This research comes up with a model which describes the profit margin of the Murabaha investment with meaningful benchmarks that inform the bank on the eventual ROI (Return on Investment).
JEL classification numbers: E22
Keywords: Islamic banks, Murabaha, Portfolio, Profit margin (of Murabaha), Stochastic process