UNIVERSITI TEKNOLOGI MARAARSHAD AYUB GRADUATE BUSINESS
SCHOOL
IFE 730ISLAMIC BANKING MANAGEMENT AND OPERATIONS
ASSIGNMENT ON:ISLAM AND TAXATION
PREPARED FOR:DR. MASTURAH BIT MAIN
PREPARED BY:NURUL NADIA BINTI ABDULL RASHID (2014715621)
NOR HAFIZAH BINTI SAMANAL(2014970723)
NIK NAINUNIS BINTI ABDUL GHANI(2014701609)
NUR SHAHIDATUL AKMAR BINTI MAHYEDIN (2014956817)
MARCH-JULY 2015
1.0 Introduction
Bai` `inah refers to an arrangement that involves sale of an
asset to the purchaser on a deferred basis and subsequent purchase
of the asset at a cash price lower than the deferred sale price or
vice versa, and which complies with the specific requirements of
Bai inah. Bai inah is very controversial issues pertaining to the
Islamic product only Shafii schlors are permitted the bai Inah
contract. Since the Bai Inah come out many issues, the contract of
tawaruq are establish and accepted many of scholars.
2.0 Bai Al- InahBai inah is one of the contracts of sales in
Islamic banking system. Previously, bai inah is used in Islamic
banking product such as personal financing and credit card. But
most of Muslim scholars decided that this contract involved hillah
to Riba. To solve this problem they come out with tawaruq
contract.
2.1Definition of Bay Al-Inah
Literally, Inah is a loan or an advance payment. It is said in
Arabic: Itana ar-rajul (the man bought on credit). This is usually
said when he barters one for another on credit or when he buys on
credit. This type of sale named Inah (a credit sale) because the
buyer of commodity for a fixed time will take its compensation
(from the seller) in cash on the spot.
Technically, scholars gave different definitions to Inah due to
their differing opinions regarding its form. However, the most
famous definition given to it by classical scholars was: a
situation whereby a person sells his commodity to another for a
specific price with payment delayed until a fixed date, and then he
buys it back from the other person at a lower price in cash.
2.2The form of Inah
The classical jurist cited different forms of Inah in their
books. There are:
1. A sells a commodity or asset to B for a certain price with
payment delayed until a specific date, and then buys it back from
him at a lower price in cash.2. A buys a commodity from B through
an intermediary present at the time of the transaction. For the
first step, the intermediary buys it from B and then he sells it to
A, seeker of Inah, at a price higher than the price at which the
intermediary bought it from B, with payment delayed till a fixed
time. Then A sells it to B for cash at a price lower than the price
A paid for it. Ibn Taymiyyah commented on this form by saying, If
he buys a commodity from him then sells it to him, and buys it back
from him again, or sells it to the third party who is real owner
from whom the loaner bought it in the first instance, it is riba.3.
A sells a commodity to B, with payment delayed till a stipulated
time. He then buys it back, with payment delayed till a date later
than that of the first transaction at a higher price.
2.3Modus operansi of Inah in the banking sector
Bay al- Inah is normally applied in cash line facility-i, credit
card, and personal financing whereby the purpose of the financing
is normally for cash and liquidity. The application of Bay al-Inah
in Islamic finance can be looked from the following modus
operandi.
1. The bank sells a particular asset to the customer on a
deferred payment basis at the real cost plus the profit that is
equivalent to the maximum amount to be paid by the customer which
is RM70 000.2. The customer then resells the same asset to the bank
on cash basis with a lower price than before which is RM50 000.3.
The customer pays the bank the amount he utilized by installment or
cash basis at once.
2.4Legality of Bayal-Inah
A) Al- Inah is permissible:
i) According to the hadith below, reported by Abu Hurayrah. The
Messenger said: Sell the al-Jam`u (lower grade of) dates for silver
dirhams and then buy with the silver dirhams the al-Janib
dates.According to Ibn Hajar & al-San`ani: the hadith indicates
the permissibility of Bay` al-Inah.The Prophet s.a.w never
specified: the sale should be with the third or the first party
with the help of the silver dirham and the hadith is a general
hadith involving the third and the first party.
" ". . " ".
Abu Hurayrah reported that Rasulullah had hired a man in the
Khaibar battle. The man then came and gave Rasulullah the dates of
al-Janib (high quality dates) and the Rasulullah asked: Do all the
dates of Khaibar as good as this? The man replied: O the Messenger
of Allah, by Allah, no, we usually would take a measure of this
type of date to be exchanged with two measures of another (lower)
types of dates, and exchanged two measures with three measures. The
Messenger of Allah said: Dont do that, sell the al-Jam`u (lower
grade of) dates for silver dirhams and then buy with the silver
dirhams the al-Janib dates
ii) There are many misleading views regarding the position of
Imam Al-Shafi representing the Shafii school pertaining to Bay
al-Inah. This view stem from the presumption that imam al-Shafii
validates and out rightly endorses Bay al-Inah. The following
provides some evidences from the classical Islamic Jurisprudence
texts that refute this view:
The basis for my position is that if a contract fulfils the
Shariah manifest criteria for its validity, I will not invalidate
it on the basis of a presumption or a customary practice between
the sellers and the buyers. Hence, I will approve it by virtue of
its apparent validity, but I prohibit a kind of situation where the
two of them nurse an intention that may likely lead to the
invalidation of the contract if it is manifested. For instance, I
forbid someone buying a sword with the intention to kill with it
unjustly, but it is not unlawful for the seller to sell it to
someone he suspects will use it to kill with it unjustly, but it is
possible that he will not use it to kill unjustly. I therefore do
not invalidate this kind of business transaction. Likewise, I
detest that someone sells grape to a buyer he thinks will use them
to make wine, but I do not invalidate such a sale because he is
selling it as something lawful, and it is possible that the buyer
will not, however, make wine from the fruit, just as it possible
that the purchaser of a sword may not use it to kill. Likewise I
invalidate a temporary marriage, i.e., mutah, whereby an expiry
date is stipulated in the contract, but if a man marries a woman
through a valid contract with the motive to have her as his wife
for only a day, or less or more, I would not invalidate such a
marriage contract but I would only invalidate the contract when
such a kind of intention is made manifest or detected. In another
vein, if a man buys a commodity from another person, and the
payment is deferred to a stipulated time, there is nothing wrong if
he sells it back to the person he bought it from or to another
person for cash at a price lower or higher than the price at which
he bought it, or for a debt or barter of a commodity at a value he
chooses to assign to it. The reason here is that the second
transaction is not linked to the first transaction.(Al-Shafii,
Al-Umm, Volume 3, page 90)
This statement of Al-Syafii signifies that he does prohibit Inah
ethically if the party in contract is not able to justify his
action and intention before Allah (s.a.w). This is to say does not
prohibit it on the basis of mere presumption of peoples intention
in entering into the sales contract. However, if the mal-intention
of the person dealing in Inah is explicit or apparent through his
expression that the commodity is to be resold to the first seller,
then he would inevitably prohibit it.
The Zahiri school agreed with Al-SyafiI, as stated by Ibn Hazm
that:
Whoever sells a commodity for a stipulated price to be paid
immediately or for a deferred payment for a short or long term, he
has right to sell that commodity to the one he bought it from at
the same price he paid for it, or less or more. Payment can be made
instantly, and it may be deferred to a time shorter or longer than
the time of the first transaction or for the same time. All these
is such a condition, then it is forbidden and must be nullified
without any hesitation, and it should be classified as a kind of
coercion as maintained by Al-ShafiI. (Ibn Hazm, Al-Mahalla bi
Al-Athar, Volume 7 page 549)
iii) The following is the tenet for a valid Bay al-Inah contract
from Syafii point of view. Bay al-Inah contract concluded in a
manner whereby both, the buyer and the seller know their intention
to do Bay al-Inah, but there is no manifestation of it (intention
to Bay al-Inah contract) in the contract.
See the following sample clause, which some shariah scholars
argue that intention is manifested by it.
Recital (in PSA) : in accordance with the principle of BBA, the
bank has entered into an agreement with the customer wherein the
bank at the request of the customer has purchased from the customer
the property at the purchase from the customer the property at the
purchased from the customer the property at the purchase price
stated therein for the purpose of immediately thereafter reselling
the property to the customer upon deferred payment terms.In
pursuance of the property purchase the bank hereby agrees to sell
and the customer hereby agrees to purchase the property upon and
subject to the term and conditions herein contained.
iv) Qiyas (Analogical Reasoning)
Bay Inah is valid. It is equivalent sale to the third party.
There involve two contract. The second sale is separate from the
first sale. The buyer has possessed (qabd) by virtue of making
instalment. Hence, it is his right to sell on to anyone (including
the first seller), either based on cash or debt method, lower or
higher pricing.
B) Ba al-Inah is prohibited:
- - " " .
i) According to the hadis above, reported by Ibn Umar.
Rasulullah forbade contract of al-Inah. The hadith indicates
al-Inah contract is a prime source of humiliation, disgrace and
disaster. Unless you repent and get rid of al-Inah. Ibn Umar
reported that Rasulullah had said: If you sell to one another with
al-Inah, and follow (from behind) the bulls tail and are satisfied
with farming and abandoned al-jihad, Allah will force you into a
state of humiliation and He will not remove it until you return
back to your religion. " " : : : : : { } .*
ii) Narrated by Abu Ishaq, from his wife Aliyah binti Anfa`: It
was reported that Saydatina Aishah was asked by a mother (a slave
belongs to Zaid bin Arqam) about a particular transaction dealt by
her. She said: O Ummu al-Muminin! I have sold a slave of Zaid bin
Arqam to `Ata at 800 dirham in credit (on behalf of her master).
Because of `Ata (the buyer) needed some amount of money (cash), I
have purchased the slave back at 600 dirham in cash. Saydatina
Aishah responded: How could you fulfill such a bad sale. You should
inform Zaid bin Arqam that the said transaction has removed all his
rewards throughout his participation in jihad with the Prophet
(peace be upon him), if he does not repent. According to the
majority of jurists, Aishah assertion clearly indicated that Inah
was unlawful contract.
iii) Maliki also said that Inah is impermissible and their
evidence is based on what Ahmad said in az-zuhdi, narrated from Ibn
Umar, There is a time that comes toward us and we find that none of
us says that he has the right of Dinar and Dirham from his Muslim
brother (Abdul, 2010). There are also a few past scholars
prohibited Inah. They said that, Inah is the sister of riba. If the
buyer sells to a non-seller at an instance, it is also Inah, but it
is allowed by the consensus. According to Muhammad bin Al-Hassan,
Inah is impermissible. He said that, In my heart, this sale is like
mountains invented by riba dealers.
iv) Al-Awza`i reported that the Prophet said: There will come a
time where people will legitimize riba by using al-bay`. (mursal)
Legitimizing (istihlal) is referred to transforming a ruling from
haram to halal. Indicates any contract in physical term to be
sale-purchase, but in essence (the substance) is a form of riba.
Hence it is prohibited.
2.5Country that implement Bai Inah Since the Bai inah is very
controversy, there are only two countries that implement the Bai
Inah. Malaysia and Brunei are the only countries applying inah in
their banking system. Their Shariah schlors agree that the majority
of scholars and financial institutions prohibit inah, but they
consider the issues as a kind of ijtihad that allows divergence of
opinions. 2.6Conditions of Bai Inah Since the Bai Inah is very
controversy, there have certain condition that must be fulfilling
to the legality of the Bai Inah. The function of Bai Inah
transaction is no other than facilitating the customer to get cash
from the buyer for whatever reason to use the cash. And of course,
the financier i.e. the seller must ensure that the purpose of the
transaction is approved by the Shariah.The Council in its 8th
meeting held on 12th December 1998/ 23 Syaaban 1419 resolved that
bai`inah transaction is permissible based the following
conditions:The ruled Bai al-inah is acceptable subject to the
following conditions:
1. The mechanism practiced is acceptable to the shafii school.
Meaning that the permissibility are follow the shafie school which
is Imam Shafii the validity of Inah does not have relation with the
intention or niyyah in the contracting parties. This intention is
something hidden which is not known unless its specified in the
contract.2. The transacted item is not a ribawi item (goods that
are not consonance with fiqh rules with respect to cash or items
sold by weight and/or measure).a. Any of sale contract in the bai
inah arrangement shall not be effected on ribawi asset within the
same type and category; andb. Any of the sale contracts in the bai
inah arrangement shall not be affected on ribawi asset within the
same category but of different type on deferred basis.3. The buyer
must receive (take possession) the good before selling it back to
the original sellerThe ownership in the bai inah asset must be
effectively transferred from the seller to the purchaser. Before
transfer the good must be receive. Possession of the asset shall be
either in the form of physical possession (qabd haqiqi) or
constructive possession (qabd hukmi).
2.7The Application or practice in the industry The practices of
Bai inah applying in their banking system is only Malaysia and
Brunei Darussalam. In Malaysia Bai inah have changes the contract
with Tawarruq since the Bai Inah has many controversy issues. But
before applying Tawaruq Malaysia used Bai inah in their banking
system. The example of the practices in the Bai inah is as
follows:
NoIslamic Financial InstitutionPersonal Financing/ Product
Name
1Bank Kerjasama Rakyat Malaysia Personal Financing-i Aslah
2OCBC Al-Amin (M) BerhadPersonal Financing-i for Progres-i,
Sukses-I, Prestij-i and Corporate Cash-i
3Public Islamic Bank BerhadBAE Personal Financing-i
4AmIslamic Bank BerhadPersonal Financing-i
5Bank Simpanan NasionalBSN AFLAH SPIK Personal Financing-i
6AgrobankAgroCash-i
7Alliance Islamic Bank BerhadAlliance Cash Vantage Personal
Financing-i
8CIMB Islamic Bank Berhad0. Xpress Cash Financing-i0. Cash Plus
Financing-i0. Pembiayaan Peribadi Sektor Awam-i
9Affin Islamic Bank BerhadAffin Islamic Personal Term
Financing-i
10Maybank Islamic BerhadMaybank Islamic Personal Financing-i
Most of the Financial institutions they used Bai inah as the
personal Financing and also for the Credit card,working capital
financing and BBA financing. The following are show the mechanism
of Islamic credit card based on the combination of bai inah and
wadiah concept:i. The customer purchases an asset from the bank on
deferred terms ( the purchase price comprise cost plus profit); for
example, f o r example, RM11, 800 (RM10, 000 + RM1, 800) to be paid
within one year by the customer.
ii. The customer thereafter will sell back the asset to the bank
on cash basis (at cost value); for example, RM10,000. The selling
price of the asset is lower than the purchase price. This is the
amount which will be credited into a marginal wadiah account of the
bank for customers use2.8 Issues pertaining to Bai Inah Bay al-inah
is not found in any classical Islamic commercial law. However the
Bai- inah are permitted by school Shafii because Shafii said that
the intention of niyyah is not condition to be determining the
validity contract of Bai Inah Bay al-inah has two contracts which
is sale contract and repurchase contract. The issues raised by the
following :2.8.1Existing two sales in one sale.The hadith have
stated that prohibit the carrying out of two sale contracts in one
sale contract, as well as that of relating a sale with conditions
contravening the requirement of that sale. Al-Shafie is the only
school of Islamic law (mazhab) that legalizes bay Inah, while other
schools of Islamic law consider bay al-Inah as a kind of invalid
transaction that leads to the usury (riba).2.8.2No actual selling
and buying transactions (bai) and the assets are never leave the
bank also one of the issues pertaining to Bai inah . This means
that the contract Bai inah selling and buying are only an excuse to
give out loan with interest. Its just as hillah to used the Islamic
commercial Law in obtaining cash without involve any elemant in
Riba.3.03.13.23.33.43.5 Conditions of TawarruqEven though there
have some issues regarding Tawarruq, but there also some solution
that make by Accounting and Auditing Organizing for Islamic
Financial Institutions (AAOIFI) to ensure the genuine application
of Tawarruq. So, all Islamic financial institution that has
implemented Tawarruq as their banking product, they should fulfill
all the parameters to make sure the contract is valid. The
parameters from AAOFI Shariah Standards for Islamic Financial
Institution 2010 act as a guideline to all Islamic financial
institutions. The important thing in any contract is the subject
matter. AAOIFI state that the subject matter or commodity should be
identified. The buyer should know the quality, quantity, size and
so on about the commodity. This is too distinct from the other
assets of the seller. The client should be given a full description
about the commodity or subject matter if the commodity is not made
available at the time of signing contract. To make different from
Bay al-inah, Tawarruq is permissible because it involve three or
more parties. So, the commodity should sell to other party not the
original seller, this is to avoid Inah. Tawarruq is divided into
two which are classical Tawarruq and organize Tawarruq. In 2009,
OIC Fiqh Academy resolution deemed organized Tawarruq is
impermissible. Based on parameters by AAOIFI, the institution
should not arrange to sell the commodity to a third party. The
institution should sell the commodity to open market to show that
the selling is not organized. Besides, the institutions should
provide the client with the information the he or his appointed
agent may need in order to sell the commodity. In order to have a
valid contract based on Tawarruq, all the Islamic financial
institutions should fulfill the several parameters as valid
condition. This is to ensure the contract is not same with Bay
al-inah because the contract of Inah is like hilah or back door of
riba. All the condition of subject matter must disclose to client
to make sure the commodity is identified.
3.6 Application in Financial institutions
3.6.1 Deposit Product Customer deposited cash in Islamic
financial institution, which is then delegated to purchase
commodities in cash on the international market. For example from
metal trader A on cash basis. The ownership of the commodity is
belongs to customer. Then, bank will purchase the metal commodity
from customer on a deferred sale at cost price plus profit margin.
The Islamic financial institution will sell back the metal
commodity to another metal trader on cash basis in the metal
commodity market. The Islamic financial institution will pay back
until maturity date to customer.3.6.2 Financing ProductThe Islamic
financial institution purchases metal commodity from metal trader A
on cash basis in a recognized metal commodity market. The Islamic
financial institution sells the metal commodity to the customer on
credit basis at cost plus profit margin. The customer appoints the
Islamic financial institution as his agent to sell the metal
commodity to metal trader B on cash basis in the metal commodity
market. This product is to help customer to obtain cash for
financing. Then, the customer will pay back based on agreed term.
Deposit product and financing product based on Tawarruq is
permissible by Shariah Advisory Council. 3.6.3 Sukuk IjarahIt
consists of the sale of a certain property or asset to the public
at a fixed price, then leasing the same property from them on the
condition that they will be resold to the first seller at the
original purchase price, either through deferred payment or spot
basis. The sukuk holder would profit from both sales. 3.6.4 Bursa
Suq Al-SilaBursa Suq Al-Sila is an Islamic commodity trading
platform for the Islamic financial and capital market. It is
designed to serve as a multi-commodity and multi-currency platform,
initially with trading of CPO (crude palm oil) to serve the
Malaysian market. This platform is Shariah-compliant on end-to-end
basis & designed to be in line with International Shariah
standards. Trading platform is fully electronic and web-based;
access is via internet with multiple security features. To ensure
the operational of Bursa Suq Al-Sila is valid, there have some
parameters must be meet. The parameters are the quantity of the
CPO, the quality, and other specifications. 3.7 Issues Regarding
Tawarruq3.7.1 Issues on CommoditiesSubject matter is one of the
important pillars in contract of sale. The contract will be invalid
if the subject matter is not identified. In contract based on
Shariah, the goods must be specified and good commodities. If the
subject of the sale has no value or is used for an illegitimate
purpose, the sale of contract will be invalid. In Malaysia, Bursa
Malaysia introduced the Commodity Murabahah (Suq Al-Sila) as a
platform to assist Islamic Financial transactions. They offered
real commodity that valuable such as crude palm oil. In modern
organized Tawarruq, there are many commodities used are spoiled
commodities. For example, Shaykh Ali al-Qara Daghi revealed that he
encountered one Tawarruq transaction using the underlying commodity
was actually junk quoted by (Dusuki, 2010). The goods is a
defective aluminum from Russia that had been in storage for more
than 10 years. In fact, the broker used that commodity precisely
because it could not be sold. The lack of proper monitoring of the
practice by certain segments in the market that could lead to the
redundancy of commodities being transacted is concerned by some
scholars. This issues pertaining to fictitious commodities are the
main reasons why organized Tawarruq is deemed a fictitious sale and
thus disallowed by most scholars. 3.7.2 Issues on AgencyIn modern
banking organized Tawarruq, the customers will not buy the
commodity themselves. A customer in need of cash (mustawriq) will
authorize the bank (agent) to buy it from the market on customers
behalf. Based on AAOIFI guideline in Article 4/7, the client should
not delegate the institution or its agent to sell on his behalf a
commodity that he purchased from the same institution and
similarly, the institution should not accept such a delegation.The
inclusion of tawkil(authorization) in the Tawarruq contract have
argue by some scholars. This is because it similar to usurious
finance because the mustawriq will take the smaller amount from the
bank, while the higher amount will be paid by him when the fixed
time lapses. This issue of Tawkil may make the contract agreement
either prohibited or makruh. In addition, the client should sell
the commodity either himself or through his own agent. The bank
should provide the client the information needed to sell the
commodity. This is clearly stated in AAOIFI in its Shariah
Standards in Article 4/10. The specification of the commodity must
be specific with the weight, quantity, quality and time to deliver.
3.7.3 Issues on Possession and DeliveryThe object must be exist and
owned by the seller at the time of the contract because it is the
important condition of sale contract. The main purpose of sale
contract is to transfer ownership of the object of the sale to the
buyer and ownership of the price to the seller. The sale contract
is deemed to be an invalid sale if this condition is not fulfilled.
Majority of jurist said that, it is necessary that the goods be
accepted by the buyers hand.The issue of non-delivery arises in the
current practice of commodity Murabahah. In some cases, the buyer
restricted from taking any delivery, either explicitly or
implicitly, by a normal procedure as practiced in the market. If
the subject matter does not exist, the seller should give clear
description to the buyer. This is to ensure the contract of sale is
valid.
4.0 Similarities and differences Similarities Element Inah
Tawaruq
Objective To obtain cash or liquidity
Differences Element Bai inah Tawaruq
Definitions a situation whereby a person sells his commodity to
another for a specific price with payment delayed until a fixed
date, and then he buys it back from the other person at a lower
price in cashAkma buat
Contracting parties Involve 2 parties Involves 3 parties or
more
Applications 1. Personal Financing 2. Working Capital Financing
3. BBA Financing4. Islamic Credit Card
1. Personal financing 2. Deposit financing 3. Sukuk 4. Bursa suq
Al- Sila
Muslim scholars Majority of them not approve Majority of them
approve
AssetThe asset return to the first sellerThe asset does not
return to the first sellers
Types No specified Classical Tawaruq and Organized Tawaruq
5.0 Conclusions
6.0 References