Bay' al-'Inah
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This document discusses Bay al-'Inah, which refers to the selling of an asset with deferred payment at a higher price, and then repurchasing the same asset from the buyer at a lower cash price. It defines Bay al-'Inah, provides evidence from hadith, and discusses the differing opinions of scholars on its permissibility. Some scholars prohibit it as a form of interest avoidance, while others permit it based on Imam Shafi'i's approval and use as a financing model when certain conditions are met. The document also outlines how Bay al-'Inah is applied in various Islamic banking products in Malaysia.
Bay' al-'Inah
- 2. CONTENT DEFINITION DEFINITION EVIDENCES EVIDENCES PILLARS OF BAY AL-’INAH CONDITIONS OF BAY AL-’INAH PILLARS OPINION OF SCHOLARS OPINION OF MODERN APPLICATION SCHOLARS APPLICATION 2
- 3. DEFINITION Literal: DEFINITION Loan or advanced payment EVIDENCES Technical: The selling of an asset with a mark up price on deferred PILLARS payment, with the intention to sell the same asset to the debtor with lower cash price, which is meant to settle OPINION OF his debt. SCHOLARS APPLICATION 3
- 4. DEFINITION Imam al-Shafii: DEFINITION It is a credit purchase of an asset which is later sold to the original owner or a third party, whether at a deferred or spot EVIDENCES , higher or lower price than the first contract, or for an exchange of goods. PILLARS Ibn Qudamah: It is a sale of an asset with a deferred price, and buys back the OPINION OF SCHOLARS same asset at a lower price. It is a bargaining (musawamah) sale and purchase APPLICATION contract i.e. without disclosing or referring to what the cost price is. Bay` al-`Inah conceptually refers to a sale of an asset, which is later repurchased at a different price, whereby the deferred price is higher than the cash price. 4
- 5. EVIDENCES Hadith: DEFINITION Rasulullah (s.a.w) has ordered Amru ibn EVIDENCES al As to prepare the army for the battle. He then purchased a camel in exchange PILLARS for a delayed payment of 2 camels OPINION OF SCHOLARS Narrated by al-Bukhari APPLICATION 5
- 6. EVIDENCES Muslim scholars: DEFINITION Permissible based on analogy, the contract is similar to other sale and purchase contracts i.e. the transfer of EVIDENCES ownership is taken place. The majority view that such a sale is forbidden. They PILLARS are Hanafis, Malikis, Hanbalis and some Shafi’is. OPINION OF Imam Shafi’i, Abu Yusuf, Abu Daud and Abu Thur are SCHOLARS of the view that this contract of sale is not contrary to Shariah principles. APPLICATION 6
- 7. PILLARS OF BAY’ AL-’INAH Seller and buyer DEFINITION Merchandise/goods EVIDENCES Price Sighah PILLARS OPINION OF SCHOLARS APPLICATION 7
- 8. FLOWS OF BAY’ AL-’INAH DEFINITION 3)Pay cash money EVIDENCES Price PILLARS A B OPINION OF SCHOLARS 1) Sell Asset 2) Buy back Asset in deferred in cash payment APPLICATION Asset 8
- 9. CONDITIONS OF BAY’ AL-’INAH Shariah Advisory Council of Bank Negara Malaysia DEFINITION resolved that bay’ al-'inah is still necessary in Malaysian context. EVIDENCES However market player are required to strengthen and enhance their operational process and PILLARS documentation to comply with the features of bay’ al-'inah permitted. OPINION OF SCHOLARS Bay’ al-'inah is permissible subject to the following condition: APPLICATION The transaction of al-’inah must strictly follow the mechanism which is accepted by the Shafie school The transacted item must not a ribawi item The buyer must receive (take possession) the good before selling it back to the original seller 9
- 10. OPINION OF SCHOLARS Scholars are divided into two group: DEFINITION 1. Those that prohibit Majority of the scholar including Hanafi, Maliki and EVIDENCES Hanbali prohibit al-’inah transaction The same result adopted by the Shariah council of AAOIFI PILLARS and majority of Shariah Advisory Council in Malaysia and Brunei OPINION OF SCHOLARS 2. Those that permit Includes Imam Shafie and supported by Ibn Hazm and APPLICATION Shariah Advisory Council of Bank Negara Malaysia 10
- 11. JUSTIFICATION OF THOSE THAT PROHIBIT It is hilah to riba DEFINITION The underlying issue on bay’ al-'inah is the difference between the muqtada al-’aqd and the EVIDENCES actual motive of the contracting parties, whether to have a real contract of sale or as hilah for liquidity PILLARS or monetary purposes. OPINION OF The polemic in the issue of permissibility of bay’ al- SCHOLARS 'inah is the status of hilah. APPLICATION 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. 11
- 12. JUSTIFICATION OF THOSE THAT PERMIT Shafii approved bay’ al-’'inah as financing mode DEFINITION A sale which is followed by a subsequent sale but EVIDENCES without any intention to have al-’'inah arrangement. Al-’Inah that involves two contracts of sale in which PILLARS the price of each contract (either cash or deferred) is similar to the other. OPINION OF SCHOLARS Al-’Inah which is concluded on an asset with a gap of time between the two contracts, the purchase and APPLICATION sale contracts. Al-’Inah which is concluded on an asset which has changed in certain aspect. 12
- 13. APPLICATION Bay’ al-'inah has been used to construct numerous DEFINITION financing product offered by the bank in Malaysia: Personnel financing EVIDENCES Working Capital Financing PILLARS Istisna’ between 2 parties BBA financing products OPINION OF SCHOLARS Islamic credit card Sukuk BBA APPLICATION Sukuk Murabahah Islamic Overdraft Murabahah Trade Financing 13
- 14. END OF CHAPTER DEFINITION EVIDENCES PILLARS OPINION OF SCHOLARS APPLICATION 14