BAY AL INAH

BAY’ AL-INAH

CONCEPTDEFINITION

• Literally: Sale and Buy back

• Technically: It is a financing contract which involves the sale and buys back transaction of an asset by a seller.

• The selling of an asset with a mark up price on deferred payment, with the intention to sell the same asset to the debtor with lower cash price, which is meant to settle his debt.

EVIDENCESHADITH:• Rasulullah (S.A.W) has ordered Amru ibn al As to prepare the army for the battle. He then purchased a camel in exchange for a delayed payment of 2 camel. (Narrated by Al-Bukhari)

MUSLIM SCHOLARS:• Permissible based on analogy, the contract is similar to other sale and purchase contracts.

• E.g: the transfer of ownership is taken place.

• The majority view that such a sale is forbidden. They are Hanafis, Malikis, Hambalis and some Shafi’is.

• Imam Shafi’I, Abu Yusuf, Abu Daud and Abu Thur are of the view that this contract of sale is not contrary to Shariah principles.

PURPOSE OF BAY’ AL-INAH •Bay al-Inah was introduced in

an effort to supplement the conventional bank’s overdrafts which is primarily based on interest(riba).

•Bay al-Inah contract is aimed at meeting short term liquidity problems, working capital requirements(of entrepreneurs) or liquid cash (for personal finance) needs of individuals.

PILLARS OF BAY’ AL-INAH

1.Seller and Buyer2.Merchandise/Goods3.Price4.Sighah (Ijab)

REQUIREMENTS1.There must be two separate contracts properly

executed.

1st contract of sale by bank to customer on deferred payment terms.

2nd the contract of repurchase by bank from customer on cash terms.

2.The merchandise or the asset must not be a ribawi materials in the medium of exchange category (gold, silver or currency) because all payments for purchases are made in money.

3.Payment of the price in the bank’s purchase contract must be on cash terms.

4.In each of the contracts there must be real and valid taking of possession of the subject matter of the contract according to the Shariah and trade convention.

5.The execution of the two contracts in Bay’ al-Inah must meet the conditions required by Imam Shafi’i

6.Allocation of the property as the subject matter of the contract must be real and the fixing of the price must also be real and reasonable an according to market price.

7.The first contract must be executed at the start before entering into the second contract (to avoid the sale of a property not owned by the seller)

8.Each of the two contracts must have the essential elements and each of the essential elements must meet the necessary conditions.

MODUS OPERANDI

BAY’ AL ‘INAH (Modus Operandi)

Sells asset RM 130,000 deferred

Sell back cash RM 100,000

Financier

Customer

Customer

The sale and buy-back transaction is considered as a legal device (hilah) to circumvent (avoid) the prohibition of riba

Financier

OPINION OF SCHOLARSo Scholars are divided into two group:

1. Those that prohibit Majority of the scholar including

Hanafi, Maliki and Hanbali prohibit al-’inah transaction

The same result adopted by the Shariah council of AAOIFI and majority of Shariah Advisory Council in Malaysia and Brunei

2. Those that permit Includes Imam Shafi’i and supported

by Ibn Hazm and Shariah Advisory Council of Bank Negara Malaysia

JUSTIFICATION OF THOSE THAT PROHIBIT• It is hilah to riba• The underlying issue on bay’ al-'inah

is the difference between the muqtada al-’aqd  and the actual motive of the contracting parties, whether to have a real contract of sale or as hilah for liquidity or monetary purposes.

• The polemic in the issue of permissibility of bay’ al-'inah is the status of hilah.

• As far as hilah is deemed as demeaning the religion, bay’ al-'inah will not be acceptable.

• However, if hilah is regarded as a mode to solve problems (makhraj) that is much needed by the people, bay’ al-'inah transaction may be acceptable.

JUSTIFICATION OF THOSE THAT PERMIT

Shafii approved bay’ al-’'inah as financing mode

A sale which is followed by a subsequent sale but without any intention to have al-’'inah arrangement.

Al-’Inah that involves two contracts of sale in which the price of each contract (either cash or deferred) is similar to the other.

Al-’Inah which is concluded on an asset with a gap of time between the two contracts, the purchase and sale contracts.

Al-’Inah which is concluded on an asset which has changed in certain aspect.

MODERN APPLICATION/ EXAMPLE Bay’ al-'inah has been used to construct numerous financing product offered by the bank in Malaysia: Personnel financing Working Capital Financing Istisna’ between 2 parties BBA financing products Islamic credit card Sukuk BBA Sukuk Murabahah Islamic Overdraft Murabahah Trade Financing

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