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ISSUES IN BAY’ AL-‘INAH AND BAY’ AL-DAYN AND PROPOSAL FOR OTHER CONCEPTS AVAILABLE IN ISLAMIC COMMERCIAL LAW

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ARZIM NAIM Chartered Islamic


Finance Professional
ALL ABOUT ISLAMIC BANKING AND FINANCE, ISLAMIC CAPITAL MARKETS, TAKAFUL,
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SATURDAY, FEBRUARY 27, 2010

ABOUT ME
ARZIM NAIM ISSUES IN BAY’ AL-‘INAH AND BAY’
KUALA LUMPUR, GO!

WILAYAH AL-DAYN AND PROPOSAL FOR


PERSEKUTUAN,
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OTHER CONCEPTS AVAILABLE IN FOLLOWERS
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of the Association of ABSTRACT
Chartered Certified The application of bay’ al-‘inah (sale and
Accountants (ACCA) and repurchase back) and bay’ al-dayn(sale of debts) is
a Practising Member of making the Islamic financial industry lost its identity.
the Association of
The issues are serious to the Islamic financial market
Chartered Islamic Finance
Professionals (ACIFP). movement, as it is not about minor details of
Founder of ARZIM religious practices (furuq) but sadly dealing with the
ASSOCIATES, Chartered fundamental (usul) of religion. This time it is riba or
usury. Its application in Islamic financial market is TO MY BLOG READERS,
Accountants, Chartered WELCOME TO MY B LOG
Islamic Finance partly caused by the lack of knowledge in riba that is This site is solely dedicated to
Professionals. Currently, a both definite and decisive. For this reason, it is publishing my writing mostly on
PhD in Islamic Finance critical to put things straight and get to the basics the topics of Islamic finance, as
candidate at the
again. This project paper endeavours to explore the and when I am able to pen my
International Centre for
Education in Islamic critical issues in regard to both instruments and thoughts.
Finance (INCEIF). An other concepts available in Islamic commercial law
Some of the articles were written
auditing /accounting that can be employed as alternatives.
as partial fulfillment for
lecturer for the local completing the Chartered
universities. Islamic Finance Professional
1.0       Introduction
VIEW MY COMPLETE PROFILE (CIFP) certifications and for the
Ph.D in Islamic Finance that I
am currently undertake.
ARZIM ASSOCIATES .
CHARTERED ACCOUNTANTS .
One critical task of Islamic banking is to ensure that
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PROFESSIONALS Interested parties, including
the behaviour of fund providers and users reporter/press or students, may
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credit has to be given to my blog
and cooperation (ta’awun). Driven by the profit (arzim.blogspot.com).

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motive, Islamic banks today have rationalised the Comments must be accompanied
by names or pseudonyms.
application of murabahah[1] and bay’ bithaman
Anonymous postings and those
ajil[2] (BBA) leading to a wholesale recognition of containing profanities and
Accounting . Islamic Finance . obscenities will be rejected.
Shariah Audit . Halal positive time preference. However, the worst
Consultancy
scenario would be the application of bay’ al-‘inah[3] DISCLAIMER
Apart from my writings
ISLAMIC FINANCE TOPICS and bay’ al-dayn[4] likes in Malaysia has further where credits have been
Accounting and Auditing given to the ideas that i
driven Islamic banking and finance towards losing borrowed / discussed on
(5)
the "REFERENCE", the
Corporate Governance its identity as a system. The Islamic financial rest of information, news,
and Ethics (2) articles, papers and slide
products introduced to satisfy the customers’ tastes presentations posted
Economics (6)
inside this blog represent
Islamic Banking and and preferences and also the Islamic bank’s attitudes the compilation of my
Finance (8) readings on Islamic
for being risk-adverse, the principle of ‘al-ghurm bil- finance from various
Islamic Jurisprudence
resources and are
(Usul al-Fiqh) (3) ghunm (no pain, no gain) has been isolated from intended solely for
Islamic Law of Contracts academic and research,
(1)
financing. This point holds true for bay’ al-‘inah and and not for commercial
purposes. Where
Islamic Rules on bay’ al-dayn or combination of both products as they applicable, credits and
Transactions (Fiqh al- copyright should be given
Muamalat) (6) are intended to satisfy the customer’s desire for fixed or attributed to the
Others (5) original authors or
income and risk-free investments. As lending has publishers of the said
Takaful (1) resources respectively.
Wealth Planning and been the traditional approach in banking, Muslims Readers are invited to
Management (1) give comment so as to
thought that only bai al-inah, murabahah and BBA expand the knowledge
and information herein. If
serve as the best alternative to lending. The same investment advice or
DAILY CALENDAR other expert assistance is
may apply in the design of salam[5] and istisna’[6] required, the
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instead of sale and purchase contract. you.
January 2011
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The same applies to the banking firms; for example,
1 March (4)
2 3 4 5 6 7 8 in the practice of al-ijarah, al bay’ (financial leasing February (21)
9 10 11 12 13 14 15 instead of true leasing) is usually applied. In this way January (13)
16 17 18 19 20 21 22
financiers do not bear the risks of ownership and
YAHOO! MESSENGER http://islamicfinancelaw.
other obligations attached to it. The banking firms for blogspot.com

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being risk-adverse generally perceived the http://www.islamiclawoffi


nance.blogspot.com
application of mudarabah[7] and musyarakah[8] as http://www.blogcatalog.c
om
risky ventures, in turn, resorts more into application
http://www.accaglobal.co
of bai al-inah, murabahah and BBA, to suit to m
http://www.mia.org.my
Recent Viewers customers’ preferences.
http://www.inceif.org
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5 days ago
The bay’ al-‘inah and bay’ al-dayn issues are m

rouf
serious to the Islamic financial market movement, as
10 months ago
it is not about minor details of religious practices

Almiraz (furuq) but sadly dealing with the fundamental (usul)


11 months ago
of religion. This time it is riba or usury. For this
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reason, it is critical to put things straight. This means

getting back to basics. This project paper endeavours


ISLAMIC FINANCE
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to explore the critical issues in both concepts and to
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Centre jointly offers propose other concepts available in Islamic
MSc in Investment
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Bay’ al-‘inah is generally defined as sale-based on
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each party gets what it intended to achieve. It is

worth noticing that the contract of murabahah and

Followers (8) BBA is instrumental in making the bay’ al-‘inah

transaction possible. ASSOCIATION OF CHARTERED


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Bay’ al-‘inah trade is not found in any classic


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Islamic commercial law. However, bay’ al-‘inah is a

legal sale in the Shafi’i Mazhab, in which it says the

intention or niyyah is not a significant element in

determining the validity of a contract. According to

Shafi’i Mazhab, such sales are to be allowed because

in the words of Imam Shafi’i, contracts are valid

(sahih) by the external evidence that they were

properly concluded; the unlawful intention (niyyah or

qasd) of the parties is immaterial, it does not

invalidate their act, unless expressed in that Act.

Imam Malik and other medinite jurists hold these

transactions as invalid or void. They consider the

second transaction along with the first, and regard

the grounds viable enough to suspect that the

purpose is to exchange an amount of money with a

higher amount that is deferred, which forms a

prohibited riba. The same opinion is shared with

Hanbali and Hanafi jurists.

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Generally, those who oppose bay’ al-‘inah have does

so primarily on the assumption that there exists an

agreement between the parties to carry out the two

sales in that order, so that the process results in one

of the parties invariably ending up obtaining

immediate cash against a future obligation settling a

higher amount. It seems that both parties are

pretentious and have no commitment to the sale

contract. The fact that both parties have no intention

of using the asset as any consumer does betrays one

principle of contract in Islam, namely the objective

of contract (maudu ‘ul aqdi). In the case of banking

firms; the sale and resale contracts initiated by either

the bank or the customer saw no event by which

either party has assumed risk-taking and value-

addition in rationalising the profit taken. In both

transactions, each party has made a prior guarantee

that in every sale there will exist an automatic resale.

As such, neither is exposed to market risks and

liability arising from, say defective goods sold, if

any. Bay’ al-‘inah is just a legal device (hilah) that

using Islamic commercial law (i.e. through trade and

commerce) to obtain cash without implicating riba;

to make forbidden thing permissible. The object of

sale comes into play by virtue of a trick to get away

with interest payments and receipts. Impliedly, bay’

al-‘inah implicates back door for interests.

            2.2       Bay’ al-dayn

Dayn or debt is basically a liability of a person to

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pay certain amount of money or in kind and the

obligation will reside until it is completely

discharged. Dayn is more general than qard (loan)

whereby, in qard contract, creditor lends money or

item to the debtor on a condition that the debtor will

return the value of the money to the lender at a

specific time. Thus, this is the source for dayn to

arise. Therefore, the qard is only a type of dayn.

Bay’ al-dayn (debt trading) in Islamic commercial

law point of view is referring to the principle of

selling the dayn which results from mu’awadhat

maliyyah contracts (exchange contracts) such as

murabahah, BBA, ijarah and others. In Islamic

commercial law, dayn can be traded only at par

under the purview of hiwalah (transfer of debt).

There is no room to profit from a debt trading.

According to most of Hanafis, Hanbalis and Shafi’s

jurists, bay’ al-dayn is not allowed to a non-debtor

or a third party at all. Such opinions are based on the

forbidden sale of bai’ al-kali bil kali[10] (a debt that

is paid by debt) and a sale of gharar[11], which

implicates the sale of a thing which the seller does

not possess; debt is intangible asset in nature.

Zahiris maintained that the sale of debt is disallowed

to third party or even to the debtor himself. Hanafi

Mazhab looked at bai’ al-dayn from the aspects of

potential risks to the buyer, debtor and the nature of

the debt itself. Thus, Hanafis also disallowed bay’ al-

dayn to the third party regardless of the types of

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debts because the risks cannot be overcome in the

context of debt selling.  This is because the debt is in

the form of mal hukmi (intangible assets) and the

debt buyer takes on a great risk because he cannot

own the item bought and the seller cannot deliver the

item sold. Contrary to that, Shafi’is maintain that the

sale of a debt is allowed if it is confirmed debt (dayn

mustaqir) and was sold in exchange for ‘ayn (goods)

that must be delivered immediately. Furthermore, the

debt sold must be traded at par value. Ibn al-Qayyim,

a Hanbali jurists confirmed that bai’ al-dayn is

completely in agreement with Shariah and there was

no general nas or ijmak (consensus on legal opinion)

that prohibited it. What was stated was the

prohibition of bay’ al-kali bil kali. Thus, bay’ al-

dayn for deferred payment is not allowed. The

Malikis also shared the same view with Ibn al-

Qayyim except that Malikis imposed eight conditions

to be fulfilled in order to protect the rights of the

debt buyer, to avoid debt selling before qabadh and

to avoid riba. The study shows that the ikhtilaf

(differences of opinion) among past Islamic jurists

centred on the ability to deliver the items sold. As for

Hanafi jurists, the prohibition for the sale of dayn to

third party for the fear that the buyer will have to

bear great risks holds the truth in it. This is especially

true if there is an absence of supervision and control.

The fifth condition set by Maliki Mazhab for bay’ al-

dayn relates to the exchange of ribawi items: the

debts can only be sold at par value.

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In the Malaysian context, the trading of Islamic debt

securities instruments (or Islamic bonds) is regulated

by the Central Bank of Malaysia and Securities

Commission to safeguard the parties involved.

Therefore, the conditions set by the Maliki Mazhab

and the fears of risks by Hanafi Mazhab are

overcome by the regulation and surveillance set by

these regulators. In the case of Islamic bonds as

practiced in Malaysia, a bond that matures at par

value can be sold at a discount before maturity. For

example, the creditor (i.e. investor) is forced to sell at

a discount the Islamic bond for liquidity purposes.

But in the capital market, practically no non-debtor

will buy debt at par value, unless he can make some

capital gain from it. A bond worth RM1,000 (par

value) may be sold for RM920 to the third party.

Likewise, the third party can sell the bond at a profit

before maturity. If he anticipates that the interest rate

is falling (this in turn will increase the bond’s price),

he can sell it at the higher price than RM920. If he

anticipates the interest rate will rise (this in turn will

decrease the bond’s price), he may sell it

immediately or hold the bond till maturity and

redeem it at par. In this way, he still making profit of

RM80 (RM1,000 - RM920 = RM80).

What practically happened is that Malaysian jurists

hold the view that the sale of securitised debts is

similar to the sale of properties: the process of

securitisation of the debts will glue the bonds or

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papers to some underlying assets and thus can

automatically qualify itself as property (al-mal).

Hence, the characteristics of debt securities are now

different from currency or money (ribawi item).

Since a property can be sold at any price, thus, the

Islamic bond as a property can be disposed at any

price agreed upon by the contracting parties. In a

contract of sale, the subject matter or object of sale

must generate usufruct (manfa’ah) to the buyer. For

example, people buy food for consumption or buy

houses to protect them from the heat or cold. But the

bond or dayn in this sense is not the commodity or

property, but only a legal right to a loan (i.e. right to

future cash flow arising from loan repayments)

represented by a piece of document in the form of

papers or certificates. The underlying of it is more of

a future monetary claim. Thus, the bond or dayn is

indeed money in nature, not property. Therefore the

sale of dayn must only be made at par value. Even if

the underlying debt was not the result of a

moneylending transaction (qard), the question of

riba arises if it was sold not at par value. Islam does

not recognise money as a subject-matter of trade.

Money has no intrinsic utility; it is only a medium of

exchange; each unit of money is 100% equal to

another unit of the same denomination, therefore,

there is no room for making profit through the

exchange of these units inter se. When the bonds are

sold at a discount or premium, the sale of dayn is

similar to the unequal exchange of money for money;

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it implicates riba al-fadl[12]. Hence, any profit

created from the sale of dayn is unlawful.

3.0       Other concepts available in muamalat to be

employed as alternatives

           3.1       Musyarakah mutanakisah or

diminishing musyarakah

Musyarakah is applicable in different modes of financing

for Islamic banks. Musyarakah can be used as for project

financing, to finance import and export, as working capital

of a running business or to purchase assets (e.g. motor

vehicle or house). In fiqh[13], the concept of musyarakah

is used in much wider sense. However, in the context of

Islamic banking operations, we are concerned with one type

of musyarakah, that which is known in fiqh as ‘inan

(unequal-shares) partnership i.e. sharikat ‘inan fi al-

mal [14] since it is this form which is seen to be the most

appropriate for Islamic banking environment. Musyarakah

financing can be utilised for purely commercial purposes

which are usually of a short term nature, or for

participation in the equity of medium to long term projects.

The type of musyarakah available are; (a) commercial

musyarakah, (b) decreasing participation or known as

musyarakah mutanaqisah, and (c) permanent

participation. Application of musyarakah will let more

involvement of Islamic banks in the sense of a real business

venture.

Musyarakah mutanaqisah or diminishing musyarakah is a

new instrument for musyarakah products and was

introduced in Egypt. Another term for musyarakah

mutanaqisah is musyarakah muntahiyah bittamlik. It is a

form of partnership contract whereby the Islamic bank

agrees to transfer gradually (by way of selling its shares in

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one payment or in instalments based on terms agreed by

both parties) to the other partner its (the Islamic bank’s)

share in musyarakah, so that the Islamic bank’s share

declines and other partner’s share increases until the latter

becomes sole proprietor of the venture. Therefore, the bank

and its clients can participate either in a joint ownership of

a property or an equipment, or in a joint commercial

enterprise. The share of the bank is further divided into

number of units and it is understood that the client will

purchase the units of the share of the bank one by one

periodically, thus increasing his own share until all the

units of the bank are purchased by him so as to make him

the sole owner of the property or commercial enterprise.

The majority of the current Islamic jurists are unanimous

in accepting it as one of the halal (permissible)

instruments. This is because it has features that do not

contradict the nas and general principles of the Shariah.

These features are as follows:

      ‘inan company (form of partnership, in which

each partner contributes both capital and work);

      promise from the financial institution to sell its

share of the company to its partner; and

      the institution sells all of its partner fully or

partially.

Diminishing musyarakah has taken different forms in

different transactions. For example, say ‘A’ wants to

participate into one business venture, say restaurant, but he

is short of fund. He approaches one of the Islamic banks,

say ‘B’ and ask if the bank agrees to participate in the

business venture. After analyzing the business plan and

track record of ‘A’, ‘B’ agrees to participate because ‘B’

believed the business is viable. Total working capital of the

business is RM100,000 : 80% will be financed by ‘B’ whilst

‘A’ has to come out with another 20%. At the same time, the

share of ‘B’ is further divided into eight units, each unit

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representing 10% ownership of the restaurant. The

agreement states that every 1 month, ‘A’ will purchase one

unit of the share of ‘B’. When the restaurant is operated, it

generated net profit of RM5,000 on a daily basis. Since ‘B’

has 80% share in the restaurant, it is agreed that 80% of

the net profit earned will be given to ‘B’ and the remaining

20% will be retained by ‘A’ who has 20% share in the

restaurant. This means that RM4,000 is earned by ‘B’ and

RM1,000 by ‘A’ on a daily basis. After 1 month, ‘A’

purchases one unit from the share of ‘B’. Consequently, the

share of ‘B’ is reduced to 70% and the share of ‘A’ is

increased to 30%. Therefore, from the date of purchased,

‘A’ will be entitled to RM1,500 being 30% from the

RM5,000 daily net profit earned whilst ‘B’ will be entitled

RM3,500 being 70% from the RM5,000 daily net profit

earned. This process will go on until after the expiry of

eight months, whereby the whole restaurant will be owned

by ‘A’ and ‘B’ will take back its original investment on top of

profit distributed as aforesaid.

Islamic financial institutions (IFIs) in Europe have been

using diminishing musyarakah as the mode for house

financing. For example, the client wants to purchase a

house but need additional funds. Thus, he approaches one

of the financiers who agree to participate in joint

arrangement to buy the house with him. The condition is

the financier will finance 80% from the price whilst 20%

will be borne by the client. At the same time, the share of

the financier is further divided in eight equal units, each

unit representing 10% ownership of the house. The

agreement states that every 3 months, the client must

purchase one unit of the share by paying 1/10th from the

price of the house. After purchasing the property jointly,

the client uses the house for his residential requirement and

pays to the joint owner for using their ownership in the

property. After 1 month, the client purchases one unit from

the share of financier. Consequently, the share of financier

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is reduced to 70% and the share of client is increased to

30%. Hence, the rent payable to the financier is also

reduced to that extent. For the next 3 months, the client

will purchase another unit of the share; this will reduce the

financier share to 60% whilst increasing his share in the

property to 40%. Consequently, the portion of rent paid to

the financier is also reduced by that portion. This process

goes on in the same fashion until after the end of two years

(i.e. 24 months), the client purchases the whole share of the

financier reducing the share of financier to ‘zero’ and

increasing his own share to 100%. The financier will get

back his investment along with rental income distributed to

him as aforesaid.

Application of diminishing musyarakah can also be used in

the capital market. For example, ABC Holdings buy a

property worth RM125 million and sells it to XYZ Holdings

for RM150 million based on the principle of BBA within 120

months. As ABC Holdings requires liquidity, it can get the

project investors involved by issuing sukuk [15] based on

musyarakah mutanaqisah. For that purpose, ABC

Holdings puts in its share (the smaller part, say 10%) in

musyarakah mutanaqisah for the purchase of the property

(which costs RM125 million). The investors hold the

majority part (90%). ABC Holdings will then buy back all

the shares from the investors every month according to the

amount and duration agreed upon i.e.120 months. This will

end at the point when ABC Holdings owns all the shares

back.

            3.2       Mudarabah contract

Mudarabah is a contract between two parties whereby one

party called rab al-mal (investors) entrusts money to

second party, called mudarib for the purpose of conducting

the trade. The mudarib contributes his labour and time and

manages the venture according to the terms of the contract.

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One of the essential characteristics of this contract is that

the profit, if any, will be shared between the investor and

the mudarib on a pre-agreed proportional basis. The loss, if

any, should be borne by the investor alone. Another

essential characteristic is that the capital provider or

investor is not allowed to interfere in the management of

the business. He may have the right to oversee, monitor and

supervise the way the business is run, its progress, its

prospects and others, but the day-to-day control of the

business is the sole right of the mudarib. It is worth

noticing that the arrangement in mudarabah contract fits

well with the structure of venture capital.

Mudarabah contract can be applied in various ways in

conducting banking, trade and finance. The arrangement is

normally be used in IFIs to set-up the investment accounts.

The funds under mudarabah contract for investment

accounts holders (IAHs) include both unrestricted and

restricted IAH funds. For unrestricted IAHs, the funds will

be invested at IFIs discretion, normally in the same asset

pool as that in which shareholders’ funds of IFIs and those

from current accounts are placed. On the contrary, the

funds of the restricted IAHs are invested in asset pools that

are separately designated and distinct from shareholders’

funds.

IFIs can also participate in venture capital with

entrepreneurs by using mudarabah contract for project

financing. IFIs provide financing to the projects and the

entrepreneurs as the mudarib act as the mangers of the

project. The IFIs do not interfere in the day-to-day

functioning of the project. The profit is to be shared

between the parties according to an agreed ratio

determined ex-ante, but the losses will be completely borne

by the IFIs.

Mudarabah can also be used to finance import and export.

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ISSUES IN BAY’ AL-‘INAH AND BAY’ AL-DAYN AND PROPOSAL FOR OTHER CONCEPTS AVAILABLE IN ISLAMIC COMMERCIAL LAW TO BE EMPLOYED...

For example, mudarabah structure can be used in the

issuance of Letter of Credit (LC) which is normally used in

the import and export transactions by the bank. For

example, the client is about to import/ purchase stocks

from oversea suppliers. He can informs the bank of his LC

requirements and negotiates terms and conditions of the

mudarabah financing for this LC. The client will then

places a deposit with the bank under wadiah [16]

principles and the full amount of the cost of the goods to be

imported/ purchased as per mudarabah agreement. As

such, he will appoint the bank as the mudarib. The bank,

acting as the mudarib, establishes the LC and pays the

proceeds to the negotiating bank utilizing the client’s

deposit. After disposing the goods, the bank will share with

the client the profit from the venture according to the terms

and agreement of the venture.

4.0       Conclusion

One of the most important characteristics of Islamic

financing is that it is an asset-backed financing. The

conventional / capitalist concept of financing is that the

banks and financial institutions deal in money and

monetary papers only. Islam, on the other hand, does not

recognise money as a subject-matter of trade. Money has no

intrinsic utility; it is only a medium of exchange; each unit

of money is 100% equal to another unit of the same

denomination, therefore, there is no room for making profit

through the exchange of these units inter se. Because of

lack of understanding in money, the current issue on sale of

dayn has arisen. For these reasons, it is critical for us to get

to the basics again. We are not only need to know what

leads to riba, we also need to know are the basic

components of Islamic legitimacy in Islamic commercial

contracts, so that there’ll be no more hilah is used to

legitimize what is forbidden in Islam. The application of

bay’ al-‘inah and bay’ al-dayn is making the Islamic

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financial industry lost its identity.

The bay’ al-‘inah and bay’ al-dayn issues are serious

because it is dealing with the fundamental (usul) of religion

which is riba or usury. Bay’ al-‘inah is just a legal device

(hilah) that using Islamic commercial law (i.e. through

trade and commerce) to obtain cash without implicating

riba. The object of sale comes into play by virtue of a trick

to get away with interest payments and receipts. However,

the main purpose of bay’ al-‘inah is to legitimize riba

which is forbidden in Islam. In Islamic commercial law,

sale of dayn at par value is permissible since this is equal to

the exchange of equivalence for equivalence (mithlun bi

mithlin) and the debt must be confirmed debt. There is no

room to profit from a debt trading. However, what is

happening in the capital market like in Malaysia, is sadly

discouraging and directly contradicts to the principle of

Shariah. The selling of bonds at premium or discount is

equivalent to the unequal exchange of money with money,

thus, implicates riba al-fadl to arise. Now, it is the time to

seek other alternatives for bay’ al-‘inah and bay’ al-dayn

 such as musyarakah and mudarabah contracts. It is only

when we get to the basics; maqasid al-Shariah or the

objectives of Shariah can be achieved.

References :

Dr. Zainal Azam Abdul Rahman. 2003. “Islamic

Securities Play A Key Role”. The Star. Tuesday

3 June 2003. Pp 22.

Dr. Zainal Azam Abdul Rahman. “Currency

Fluctuation And Its Effects On Debts And

Obligations In Islamic Law”. Jurnal Undang-

Undang. Pp 21-38.

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ISSUES IN BAY’ AL-‘INAH AND BAY’ AL-DAYN AND PROPOSAL FOR OTHER CONCEPTS AVAILABLE IN ISLAMIC COMMERCIAL LAW TO BE EMPLOYED...

Dr. Zainal Azam Abdul Rahman. “Krisis Mata Wang

Dari Perspektif Islam”. Mingguan Malaysia.

Rosly, Saiful Azhar. 2005. Critical Issues on Islamic

Banking and Financial Markets: Islamic

Economics, Banking and Finance, Takaful and

Financial Planning. Kuala Lumpur: Dinamas

Publishing.

Munawar Iqbal and David T.Llewellyn. 2002.

Islamic Banking and Finance: New

Perspectives On Profit-Sharing and Risk.

United Kingdom. Edward Elgar Publishing.


Resolutions of The Securities Commission Shariah
Advisory Council. 2nd Edition.

[1] Murabahah : Sale at specified margin. However, the


term is now used to refer to a sale agreement whereby the
seller purchases the goods desired by the buyer and sells
them at an agreed marked-up price, the payment being
settled either in instalments or in lump sum.
[2] Bai’ bithaman ajil : Trading at cost plus specified mark-
up. A variation form of murabahah (sale at specified
margin) with purchase payments is deferred and payable at
a certain particular time in the future (e.g. via
installments).
[3] Bai’ al-‘inah : Sales and repurchase back. Refers to
trading whereby the seller sells his assets to the buyer at
agreed selling price (with a specified mark-up) to be paid by
the buyer at a later date. After that, the buyer sells back the
assets to the seller at a cash price, lower than the agreed
selling price.
[4] Bai’ al-dayn : Sale of debt or liability. According to large
majority of fuqaha (jurists who give opinion on various
juristic issues in the light of Quran and the Sunnah), debt
cannot be sold except at its face value.
[5] Salam : A sale whereby the seller undertakes to supply
some specific goods to the buyer at a future date in
exchange of an advanced price fully paid on the spot.
[6] Istisna’ : A contract whereby a manufacturer
(contractor) agrees to purchase (build) a deliver a well-
described good at a given price on a given date in the
future.
[7] Mudarabah : A profit and loss sharing contract in which
one party provides the financial capital and the other
manages the enterprise. While profit is shared, loss is borne
by the financier.
[8] Musyarakah : Similar to mudarabah contract, with the
difference that both partners participate in the
management and the provision of capital and share in
profit or loss.

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ISSUES IN BAY’ AL-‘INAH AND BAY’ AL-DAYN AND PROPOSAL FOR OTHER CONCEPTS AVAILABLE IN ISLAMIC COMMERCIAL LAW TO BE EMPLOYED...

[9] Al-bay’ al-mutlaq : A general sales. Normally, the


meaning resorts to the cash sales.
[10] Bai’ al-kali bil kali : A debt sale that is paid by debt. It
is a type of credit sale in which on the date of the discharge
of the debt, the debtor seeks extension with the promise to
pay something in addition. The creditor then sells the debt
again to the debtor for another period and increases the
price. In this case, the debtor did not receive anything in
exchange when being charged for extending the period of
payment.
[11] Gharar : Literally means deception, danger, risk and
uncertainty. Technically, means exposing oneself to
excessive risk and danger in a business transaction as a
result of uncertainty about the price, quality, quantity of
the counter-value, date of delivery, the ability of either the
buyer or the seller to fulfill his commitment or ambiguity in
the terms of deal.
[12] Riba al-fadl : Riba pertaining to trade contracts. It
refers to an exchange of different quantities (but different
qualities) of the same commodity.
[13] Fiqh : The science of understanding of divinely-
revealed law. Islamic jurisprudence covering all aspects of
life including economic.
[14] Sharikat ‘inan fi al-mal : A form of partnership which
is termed as limited investment partnership.      
[15] Sukuk : Refers to a financial paper showing entitlement
of the holder to the amount of money shown on it. It is a
form of financial note.
[16] Wadiah : A contract whereby a person leaves a
valuables with someone for safekeeping. The keeper can
charge a fee, eventhough in Islamic culture it is encouraged
to provide this service froo of charge or to recover only the
costs of safekeeping without any profit.
POSTED BY ARZIM NAIM AT 4:49 AM  

LABELS: ISLAMIC RULES ON TRANSACTIONS (FIQH AL -


MUAMALAT)

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