Unit 5

Shari’ah Issues in Liquidity Management Contracts
Unit 5 | 1
Shari’ah Issues in
Liquidity Management Unit 5
Contracts (‘Inah,
Tawarruq, Qard & Wafa)
Topics in This Unit
5.1- Introduction
5.2- ‘Inah contract
5.3- Legitimacy of ‘inah according to Muslim jurists
5.4- The relevance of intention to ‘inah
5.5- Tawarruq contract
5.6- Qard hasan contract as a liquidity management instrument
5.7- Wafa’ contract
Unit At the end of this unit, you should be able to:

Objective
• Determine the Shari’ah issues and arguments related to
‘inah
• Appreciate the Shari’ah issues and arguments related to
tawarruq
qard
wafa’
SH5023 Shariah Issues in Islamic Finance

© INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2014/1435 AH
Unit 5 | 2
Key Terms
‘Inah
Hiyal
Tawarruq
Intention
Sadd al-zarai’
Wafa’
Qard
LIQUIDITY MANAGEMENT
CONTRACTS
Liquidity management is a crucial aspect in Islamic

finance; many issues in the industry have emerged
because of the issue of liquidity management. In
Islamic finance, there are a few underlying contracts
used for the purpose of liquidity management. They
are: ‘inah, tawarruq, wafa’ and qard hasan. Some of
these contracts are suitable while some of them are
not. In addition to this, some Shari’ah issues related
to each contract will be discussed in this unit.

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Unit 5.1 INTRODUCTION
Liquidity is one of the most important elements for market efficiency. However, liquidity
cannot be obtained through lending and borrowing based on interest because it is not allowed
by Shari’ah. Therefore, other means of liquidity management should be considered to address
the needs of the market in a Shari’ah compliant manner. The proposed instruments to be used
to address the issue of liquidity are the following contracts: ‘inah, tawarruq, qard and wafa’. In
this unit, the concept of these contracts and argumentation of the scholars pertaining to their
legitimacy and some other issues related to them will be discussed.
Unit 5.2 ‘INAH CONTRACT
Unit 5.2.1 DEFINITION AND NATURE OF ‘INAH
Linguistically, the term ‘inah carries the meaning of salaf, or contracting a loan. It is used in
this meaning to refer to purchasing on credit. It could also be a derivative of the term ayn,
which among various other meanings, also stands for present assets (cash). Thus, it denotes an
instance where a person purchases an asset for its subsequent sale on cash that is needed when
he does not have an asset to sell. It is also said that the term is derived from i’anah, or assistance,
as the person is assisted throughout this process.
The term ‘inah is also mentioned in some hadith reported from the Prophet (p.b.u.h._, the
reliability and authenticity of which, however, is a subject of difference among experts of hadith.
One of these has been narrated by the Companion Abdullah ibn ‘Umar:
“When men become frugal with money (gold and silver coins) and trade on the
basis of īnah, and (when they) follow the tails of cows and leave jihad in the path of

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Allah, Allah will send down a trial that he would not remove until they revert to their
religion.”
Another version of the hadith says:
“When you trade on ‘inah, and take hold of the tails of cows and become contented
with farming and leaving jihad, Allah will impose on you (such) ignominy that he
would not remove it until you return to your religion.”
As far as its technical meaning is concerned, jurists of different schools of Islamic law have
put forth various definitions, which, although different in detail, are observed to be similar
in essence. Thus, many of the descriptions given by jurists for ‘inah define it as a sale of a
commodity on credit and repurchasing it for a lesser amount in cash.
The Hanafi jurist, Ibn ‘Abidin, describes ‘inah as the sale of an item at profit on deferred payment,
for its subsequent buy-back by the original seller at a lesser price, which is for the purpose of
settling a debt. The process of ‘inah according to Maliki jurists is as follows: to sell a commodity
at a known price on deferred payment, and to subsequently purchase it from the purchaser at a
lesser price. The Hanbali jurist, Ibn Qudamah, describes it as selling a commodity to a person
for a deferred price, and then repurchasing the same commodity from him at a lower cash
price. Hanbali jurists have also used the term ‘inah to indicate credit sale in general. According
to Shafi’i jurists, it is the selling of an item at a higher, deferred price and after delivery of the
subject matter, to purchase it back from the purchaser at a lower cash price, so that the higher
amount remains a debt on him. The term has also been used by Shafi’i jurists in a different
context to mean a sale that takes place through the display of a sample.
As may be noted, the definition of Ibn ‘Abidin, which does not specify to whom the commodity
is sold in the second sale, could include an instance where it is sold to a third party other
than the original seller. This is referred to as tawarruq, which has been discussed separately
by many jurists, due to the significant difference in the issue brought about by the change in
final purchaser. Thus, this definition could be termed ambiguous, in that it is not confined to
treating the ‘inah sale alone, where the ultimate buyer is invariably the original seller who had
sold the item in the first place.
It can be concluded from these definitions that apart from the larger scope of the Hanafi
definition, the meaning given to ‘inah by other jurists is observed to be largely identical, despite
some variation in detail and conditions. These do not involve the tawarruq mode directly,
although it could come under the purview of ‘inah by extension. Thus, the basic ‘inah contract

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in these definitions is seen to comprise two transactions of sale; the first being at a deferred
price, while the second, at a lower cash price. The process of ‘inah, without reference to its
name, but as described by the noted Hanafi jurist al-Kasani, does not differentiate between the
first sale taking place on credit terms or cash. What is relevant is whether the price had been
paid or not. Thus, whether a person sells a commodity on cash or credit, the price is not paid by
the purchaser immediately, and the seller is not allowed to repurchase the item for an amount
less than the previous price.
It should be noted that Maliki jurists have also defined ‘inah in a different sense. According to
them, ‘inah means the sale of a commodity to a person who had sought it from the seller for
purchase while the seller did not have it, after the seller purchases it for himself from a third
party. As for the type of sale in question, which is referred to as ‘inah by jurists of the other
schools, it is categorised by Maliki jurists under buyu’ al-ajal or deferred (payment) sales. They
define buyu’ al-ajal as the purchaser selling on cash what he had purchased on credit to the
previous seller. This is more or less equivalent to the definition given by others of ‘inah.
As mentioned above, Hanbali jurists have also used the term ‘inah to indicate sale on credit
in general. It is reported from Imam Ahmad that he considered a sale to be reprehensible
(makruh) if someone is carrying out sale contracts on deferred payment all the time. Where a
person resorts to credit sales as well as cash sales, it would not be reprehensible. This is because
a credit sale is usually utilized for the purpose of benefiting from the higher price that could
be fixed in view of cash credit terms. However, Hanbali jurists have clarified that such a sale
is not prohibited, and that it would be makruh only when the seller has an alternative trade.
Therefore, the term ‘inah seems to have been used in the Hanbali school of law to mean both
the sale and buy-back arrangement as well as for credit sale.
Imam al-Shafi’i, in describing his principle, relevant to the ‘inah sale, says in al-Umm:
“When one purchases a commodity from another and takes its delivery, and the price
happens to be on deferred terms, it is not objectionable for him to sell it to the person
from whom he had purchased it or to someone else, for a cash price less than his
purchase price or higher, or on credit, or against another commodity.”
In this, it is obvious that Imam al-Shafi’i has not referred to ‘inah by name here. The Shafi’i jurist,
al-Nawawi, mentioning ‘inah by name, has defined it as selling a commodity for a deferred
price and delivering it to the buyer, and then purchasing it before receipt of the former price at
a cash price lower than the former price. The reverse of this transaction is also termed as ‘inah
by Shafi’i jurists. Thus, ‘inah also refers to the sale of an asset at a low price in cash and after

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its delivery to the buyer, to purchase it at a higher deferred price, irrespective of whether the
payment for the first sale was received or not.
Unit 5.3 LEGITIMACY OF ‘INAH ACCORDING TO MUSLIM

JURISTS
Jurists have discussed the validity of ‘inah from various perspectives. Although not all have
used the term ‘inah, the central transaction dealt with is credit sale, followed by cash purchase
at a lower price, taking place between two parties. A number of variations of this transaction
have been considered by jurists, with different combinations of credit and cash sales, money
and commodities, lower and higher prices, and so on. A detailed discussion of these could
unnecessarily lengthen our analysis, as they pertain to topics such as riba in credit (riba al-
nasi’ah), riba in exchanges and trade (riba al-bay’, riba in currency exchanges (riba al-sarf))
and required nature of possession of counter values in trading transactions, among others. A
comprehensive treatment of the legitimacy of ‘inah would also call for a discussion of other
aspects such as the admissibility of hiyal or legal stratagems, the significance of motive and
intention in contracts, sadd al-dhara’i or closing of avenues, and original permissibility of
transactions (ibahah asliyyah), and so on. This unit concentrates mainly on aspects of ‘inah
relevant to financing only.
We could summarise here the discussion of jurists on the validity of ‘inah, i.e., where two
separate contracts independent of each other take place unconditionally, and each contract
is finalised with the delivery of the asset to the other party, together with the fulfillment of all
other general requirements for the validity of sale contracts. Shafi’i jurists, the main proponents
of ‘inah, have described the broad principle endorsed by them in this regard as follows. When
a person sells a commodity on cash or credit terms and hands over possession, and the parties
separate with mutual satisfaction regarding the contract, it is permissible for him to purchase
it from the previous buyer for an amount equal to, higher, or lower than the former price, of
the same currency as before or different, paying cash or on credit, after receiving payment for
the previous sale or before it. This principle is acknowledged by the Companions, Ibn ‛Umar
and Zayd ibn Arqam, the majority of the successors to the Companions, (i.e., tabi’un), and
the majority of jurists. On this basis and according to the authoritative position upheld by
the Shafi’iI jurists, the two independent contracts, jointly referred to as ‘inah, are held valid.
This is so, even when one of the two parties is known for the practice of ‘inah, as according to

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the principle upheld by Shafi’i jurists, the intention of the parties, even when it happens to be
unacceptable, does not result in the invalidity of the contract, unless such intention is given
expression in the contractual text. However, according to some other Shafi’I jurists, when a
party is known to practise ‘inah, the second sale is considered to be conditional upon the first,
by virtue of custom, thus resulting in both contracts becoming invalid. It is important at this
juncture to note that Shafi’i jurists have differentiated between the validity of a contract and its
permissibility, as shall be discussed later.
Maliki jurists have categorised the process in question under buyu’ al-ajal, where various forms
of the two sale contracts, taking place in sequence involving various combinations of different
prices and different periods are discussed. They have described nine possible variations, the
permissibility of two which have been subjects of different opinions, while there is unanimity
pertaining to the rest. When one sells a commodity on a deferred payment and thereafter
purchases it again, the price in the second transaction could be deferred for a period equal to
the first, shorter than the first, or longer. In each of these situations, the price of the second
transaction could be equal to that of the first, lower, or higher. The types where jurists have
differed are:
1. where the price of the second transaction is lower than that of the first, and is on a cash
basis; and
2. where the price of the second transaction is higher than that of the first and is deferred
for a longer period.
Imam Malik, and other Medinite jurists hold these formats invalid. 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 riba. Since the transaction acts as a medium for attaining what is prohibited, it becomes
invalid.
According to Imam Abu Hanifah, if the two prices are such that riba could be applicable (such
as gold and silver), and are identical in type (gold), the repurchase of the sold commodity is not
allowed except at a price equal to the first, without any increase or decrease. If the price of the
first sale was such that riba is not applicable (such as commodities), the person may repurchase
the sold commodity for a price higher than the initial price or lower. If the two prices belong
to different types where riba is applicable (such as gold and silver), disparity between them,
although analogically permissible, is unlawful based on istihsan.

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Hanbali jurists also agree that when a person sells a commodity on credit and thereafter
repurchases it at a price less than the price of his former sale, the transaction is invalid. The
reason is that this could serve as an avenue leading to riba; one could seek to legalise the sale of
one thousand against one thousand five hundred by involving an asset in this manner. However,
if the price of the second transaction is equal to that of the first or is higher, it is permissible. The
above ruling applies where the commodity had not diminished in any manner after its sale. If it
has diminished, it could be purchased at any price, as any decrease in the price could be against
the loss of value in the asset, and not for the purpose of riba. If the purchase is against another
asset, or the first sale was against an asset and the commodity is then repurchased for cash, it is
permissible, due to the fact that riba is non-applicable between money and commodities. If the
first sale is on cash, and the second sale takes place through another currency, it is permissible,
although considered unlawful by Imam Abu Hanifah, on the basis of istihsan.
Unit 5.3.1 DENOUNCERS OF ‘INAH
The overwhelming majority of Muslim jurists have disapproved ‘inah as a transaction on the
basis that it could involve riba. Although the exact format intended by each and the specific
reasoning adopted could be different, the basic rationale in its condemnation apparently is
its easy misuse for the purpose of disguising a riba contract. Invalidity of ‘inah, that is, the
purchase of what one had sold on credit at a lower cash price, has been reported from a number
of Companions, and a considerable number of jurists. This position has been reported by the
Companions Ibn Abbas, ‘Aishah and al-Hasan, and by the tabi’un such as Ibn Sirin, al-Sha’bi
and al-Nakha’i. It is the ruling of the early jurists Rabi’ah, ‘Abd al- ‘Aziz ibn Abi Salamah, al-
Thawri, al-Awza’i and Ishaq. Imam Malik, Imam Abu Hanifah and Imam Ahmad, along with
many other jurists of their schools, hold the ‘inah sale invalid. The Hanbali jurist Ibn Taymiyyah
and his disciple Ibn al-Qayyim have strongly denounced ‘inah in their work. A fair number of
contemporary Islamic scholars and writers have also upheld its invalidity. Adopting ‘inah based
modes, especially in the context of banking transactions for the purpose of financing, has
been prohibited by many contemporary bodies of Shari’ah scholars such as the Jeddah-based
Islamic Fiqh Academy and the Islamic Banking Conference, and Shari’ah supervisory boards of
a number of Islamic banks such as the Kuwait Finance House, Faisal Islamic Bank of Bahrain,
and Dar al-Mal al-Islami, among others. The AAOFI standard has also been set along this line.

Unit 5 | 9
Unit 5.3.2 PROPONENTS OF ‘INAH
While there is no dispute over the invalidity of the first type of ‘inah where the intention to do
the sale and buy-back is explicitly mentioned in the contract, the second type of ‘inah where
no intention to do ‘inah has been explicitly manifested, is known to have been recognised by
other Companions such as Ibn ‛Umar and Zayd ibn Arqam, jurists of the Shafi‛i and the Zahiri
schools, and the early jurist, Abu Thawr. The Hanafi jurist, Abu Yusuf, has also considered it
acceptable, and is reported to have said that many of the Companions practised it, and did not
count it as riba. In recent times, the Shari’ah Advisory Council of Bank Negara Malaysia and
the Securities Commission of Malaysia have recognised ‘inah as permissible principles in the
practice of Islamic banking and capital market in Malaysia, respectively. Hence, the Islamic
banking industry as well as the capital market in Malaysia carries out a large part of their modes
and structures of financing through methods based on ‘inah.
Unit 5.3.3 ARGUMENTS AGAINST THE VALIDITY OF ‘INAH

AND THEIR RESPONSES
The overwhelming majority of Muslim jurists who negate the validity of ‘inah supported
their position with both textual as well as rational evidence. The famous hadith produced in
denouncing ‘inah is the hadith reported by ‘Aishah, where she rebuked a Companion for his
involvement in a trading transaction corresponding to ‘inah. Abū Ishaq al-Sabī’i reports from
his wife that she visited ‘Aishah. The slave-mother of the child of Zayd ibn Arqam also entered
with her and addressed ‘Aishah saying: O mother of believers, I sold a slave to Zayd ibn Arqam
for eight hundred silver coins deferred until receipt of the grant, and I purchased him (again)
for six hundred cash.” ‘Aishah told her, “It was an evil purchase that you did, and an evil sale;
convey to Zayd that his jihad in the company of the Messenger of Allah is annulled, unless he
repents.”
A slightly different chain of the hadith is also mentioned by al-Mawardi in his book al-Hawi,
where the hadith is reported by the son of Abu Ishaq al-Sabi’i from his mother ‘Aliyah bint Ayfa’,
who says that she set out on Hajj with Umm Habbah, and that they met ‘Aishah and greeted
her, whereupon she asked from where they were. They said that they were from Kufah, at which
she seemed inclined to turn away. Umm Habbah told her, “Mother of believers, I had a slave
girl, whom I sold to Zayd ibn Arqam for eight hundred silver coins deferred until receipt of the
grant. He wished to sell her, so I purchased her from him for six hundred silver coins cash.” At
the end of this narration, it is mentioned that Umm Habbah asked whether she could retrieve

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her capital, to which ‘Aishah responded by reciting the Qur’anic verse appearing in the context
of the prohibition of riba (Al-Baqarah : 275): “One who receives the admonition of his Lord at
which he desists, that is, from dealing in riba, what transpired before would be (judged in) his
(favour).”
The way in which the invalidity of the transaction is understood from the above hadith is
as follows. In the hadith, ‘Aishah has stated that the practice of ‘inah could bring about the
annulment of his jihad, in spite of no apostasy had taken place. Such a ruling could not be
based on her conjecture alone Such severe condemnation could only emanate from her having
heard it from the Prophet (p.b.u.h.). Thus, it could be considered that condemnation of the
transaction has been originally confirmed through a Prophetic tradition. This bears out that
the transaction is invalid, as contracting an invalid transaction is a sin. The harsh terms used by
‘Aishah in condemning the transaction and her description of it as evil would only be correct if
the transaction was invalid, as a valid transaction cannot be evil. Such condemnation would be
justifiable only if the transaction described is prohibited and is a sin.
Since the hadith narrated from ‘Aishah is considered to be the strongest argument against ‘inah,
proponents have attempted to answer it in detail. They observe that the hadith belongs to the
category of mujmal, (brief and general) which requires explanation for proper comprehension.
It could not be concluded with certainty that the condemnation of ‘Aishah was directed at
the nature of the transaction due to the consideration of it being involved with riba. Imam
al-Shafi’i has stated in his al-Umm that it is quite possible that the condemnation has arisen
due to uncertainty in the period of deferment in the first sale. It was not known for certain
when the grant was to be received, and this made the period unknown, which would lead
to the invalidity of the sale. Some narrators in the chain of narrators of this hadith are not
known with certainty. hhImam al-Shafi’i has expressed his doubts regarding its authenticity.
The Zahiri scholar, Ibn Hazm, states in al-Muhalla that it is not established that the wife of al-
Sabi’i had been present during the incident. Imam al Shafi’I has narrated some versions of the
hadith where it is reported by her from another woman. The son of al-Sabi’i is also not regarded
as a sound narrator by experts of hadith. According to Ibn Hazm, the battles taken part by
the Companion Zayd were so many; hence it is not conceivable that anything except apostasy
could invalidate them. (p.b.u.h.) the battle of iAl- (s.w.t.)e If it is claimed that the hadith only
censures the second sale, it would not be correct, because some versions of this hadith record
the words “sharayti” which means “sold”. Thus, the sale, and the ensuing purchase based on it,
both have been condemned.
Imam al-Shafi’i also stated that even if it is conceded that ‘Aishah had disapproved of the cash
purchase of what was previously sold on credit, the matter then would be one of difference of

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opinion among the Companions. ‘Aishah and the companion Zayd ibn Arqam is understood to
have different opinions pertaining to the transaction. Where Companions differ in opinions,
qiyas or analogy would be resorted to, which is found to be supportive of the position taken
by Zayd. This is because a person is free to sell what belongs to him to any person he wishes.
Thus, a sale to the person from whom it was bought originally would also be permissible. Thus,
Imam al-Shafi’i has denied the ascription of this narration to ‘Aishah. The Companion Zayd
ibn Arqam would only have done what he sees as correct, in which event there is no reason
for ‘Aishah to consider that his devotions had become void , in spite of holding a view to the
contrary.
According to Ibn Hazm, even if the action of Zayd was wrong, he would still be rewarded for it,
as he had done it based on his own considered judgment (ijtihad), for which a jurist is rewarded.
The opponents have also cited the abovementioned hadith narrated by Ibn ‘Umar. This hadith
is as follows:
“When men become frugal with money (gold and silver coins) and trade on the
basis of ‘inah, and (when they) follow the tails of cows and leave jihad in the path of
Allah, Allah will send down a trial that he would not remove until they revert to their
religion.”
According to another version of the same hadith:
“When you trade on ‘inah, and take hold of the tails of cows and become contented
with farming, leaving jihad, Allah will impose on you (such) ignominy that he would
not remove until you return to your religion.”
These narrations are taken to mean that trading on the basis of ‘inah is a reason that could
bring about disgrace and humiliation for Muslims. This strongly worded warning indicates that
trading on the basis of ‛inah is impermissible.
Responding to the hadith narrated by Ibn ‘Umar, proponents of ‘inah have drawn attention
to the non-authenticity of the hadith due to its weak chain of narrators. A hadith expert, Ibn
Hajar, has conceded that there are some weaknesses in the narration. Therefore, the hadith is
not worthy of being cited in support.

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Besides, it is also argued that it is not clear whether the usage of the term ‘inah in the hadith is
in relation to the mechanism in question, as the term carries other meanings such as credit sale
in general, resulting in the term becoming ambiguous.
In addition, ‘inah is referred to in this hadith together with other activities such as farming,
which is permissible beyond any doubt. The context of the hadith indicates that the prohibited
issue is over-involvement in worldly activities, while disregarding the obligation of striving
for the cause of religion, and individual condemnation of each activity mentioned is hardly
intended. Thus, at most, this hadith could indicate that ‘inah and other activities such as
farming would be condemned when they lead to the abandonment of jihad, and the hadith on
its own could not be cited in support of the prohibition of ‘inah.
Another hadith cited by the opponents of ‘inah is the narration reported by Abu Hurairah
which states:
“One who effects two sales in a single sale should take the lower of the two, or riba.”
Opponents claim that the transaction indicated in this hadith includes the sale of ‘inah, because
in ‘inah, two sales take place with the same contractors. When the commodity is sold at credit
for a higher amount and then repurchased for a lower price at cash, it could be referred to as
two sales taking place on a single occasion. If the seller claims the higher price, it would be riba,
therefore, only the lower amount should be taken.
Those who endorse ‘inah point out that the hadith does not mention specifically the word
‘inah. It is only the interpretation made by some jurists that leads to it being associated with
‘inah. In fact, this hadith could be explained to imply many other transactions as well. It is not
correct to say that the ‘inah process involves two sales taking place together. Each sale in ‘inah
is an independent contract carried out, wholly separate from the other. Imam al-Shafi’i has
forcefully underscored this point. The commodity owned by the purchaser through the first
transaction could be used by him in any manner he wishes; he could consume it, use it as a gift,
donate or sell it to anyone he wishes, apart from selling it at price lower or higher than the price
at which he had bought it initially (on credit). If the latter is prohibited, it could be extended to
justify the prohibition of its consumption as well.
In condemning ‘inah, another narration forwarded by the opponents is the saying of the
Prophet (p.b.u.h.) recorded by al-Awza’i that states:
“A time will come when people seek to permit riba through sale.”

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This narration is held to signify the prohibition of contracts that are in the form of sales, in
which the purpose happens to be riba. The hadith refers to the process of doing something that
is legal but the intention is to reach something that is prohibited. Therefore, the overt form
would be disregarded, taking the objective and purpose of the transaction into consideration.
The prohibition of riba is not intended to cover its appearance and wording only; the reality
and the essence of riba are definitely intended in the prohibition. Although the ‘inah sale
is modelled under the name of sale, the end result will be similar to the practice of riba. Its
prohibition is obviously covered by this Hadith.
Proponents of ‘inah argue that the hadith is mursal (a kind of hadith where the name of the
Companion who reports it from the Prophet (p.b.u.h.) is not cited in the chain of narrators),
thus making the hadith unsuitable for reference. However, others have upheld its validity in
spite of its mursal nature.
Opponents have also referred to an incident involving Ibn Abbas, where he was questioned
about ‘inah pertaining to silk. He is reported to have said that “Allah cannot be deceived; this
is of what Allah and his Messenger have prohibited.” According to another narration, he was
asked about a person who sold a silk cloth to another for a hundred, and then purchased it
again for fifty on cash, whereupon he said, “Silver coins against silver coins unequal in quantity,
when a silk cloth come in between them.”
In line with this saying, they argue that the purpose of the ‘inah sale happens to be the exchange
of money in unequal quantities, with the commodity acting only as a formality. Therefore, the
contract is one of riba. The parties do not wish to own the commodity through the contract,
and do not have any interest therein. The sole purpose and objective happens to be to exchange
, for example, one hundred for one hundred and twenty, with the commodity being involved
only for the purpose of deception. Not only the contractors, but an outsider who observes the
contract would conclude that the parties are not interested in the contract per se.
Another argument of the opponents is that ‘inah is a kind of transaction that embodies
shubhah or suspicion of riba. In other words, the transaction, although not explicitly involving
any lending or borrowing on interest, strongly indicates the involvement of riba. Once the
commodity is out of the transaction at the end of the twin contracts, the two prices are offset
against each other, and there invariably would be an excess in the first price that is not matched
with a counter value in the second price. This is the precise meaning of riba. However, the
excess could only be perceived when both the contracts are considered together. Therefore,
when the contracts are taken in isolation, they indicate what is described as suspicion of riba.
Suspicion of riba is counted as equal to real riba with regard to prohibitions, as a precautionary

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measure. Maliki jurists have, in essence, looked at the transaction in the same manner, and
argued that it could be used as an avenue towards legalising riba. Thus, the transaction could
be utilised for the purpose of exchanging money and other monetary items such as gold and
silver in unequal quantities involving deferment. As this is an avenue leading to an offensive
end, it should be blocked, as required by the principles adhered to by Maliki jurists.
Proponents, on the other hand, argue that the abovementioned factors would become relevant
only when the two contracts are taken together, while there is no justification for doing so.
Each transaction is complete in itself, and happens to be free of the conditions that could bring
about invalidity. There is no reason to consider the second contract to be part of the first, as the
first is concluded, giving the parties full right over their respective counter values with delivery
and transfer of possession of the asset as mentioned above. Therefore, the contracts should be
permissible.
Unit 5.3.4 ARGUMENTS FOR VALIDITY
Proponents of the ‘inah sale who see it as two individual sale contracts that are valid and are not
conditional on each other have cited in their support, evidence based on Al-Qur’an, Sunnah
and logical reasoning. Fundamentally, they have drawn support from the Qur’anic verse that
expounds the permissibility of trade, as it has been done against the prohibition of interest. The
expression used here to denote permissibility of trade is indicative of universality or generality,
embracing all types of trade. Thus, all types of trade, as long as they are not excluded from this
universality by valid textual evidence, would remain within the boundaries of permissibility.
The ‘inah sale, comprising trading transactions, would also remain permissible, as there is no
evidence to establish the contrary. In the Al-Qur’an, it is stated: “What has been prohibited
on you has been described to you,” while the prohibition of ‘inah is not mentioned in any
established text.
Opponents point out that the validity of two individual transactions would not necessarily
be the same when they are combined with each other. Thus, where two valid transactions are
joined, the ruling could be different, as the factor of combination, also plays a role in determining
the validity of the transactions, even when they had been valid prior to it. The case of a sale
transaction taking place together with a contract of lending could be cited as an example. This
process, referred to as bay wa salaf in hadith, has been prohibited by the Prophet (p.b.u.h.),
despite the fact that both the sale and loan are valid transactions when treated individually.
Similarly, opponents have also cited the example of two sisters who are married to a single
person. Combining two sisters in marriage at the same time is prohibited, that is, one may not

Unit 5 | 15
marry the sister of his wife while the latter is still his wife. This is despite the permissibility of
marrying each of them individually. As a response, the proponents point out that there is no
valid reason for considering the two transactions of ‘inah as forming a single transaction, as
each takes place individually, and thus, their individuality remains.
The hadith that deals with an instance where the Prophet (p.b.u.h.) advised a person to adopt
a trading mode instead of resorting to a method that involves riba al-fadl forms a strong
argument in favour of those who recognise the validity of using legal stratagems for the purpose
of reaching a result which is legal. This also happens in case of ‘inah. According to a famous
hadith recorded by al-Bukhari and Muslim, reported by the Companion Abu Sa’id al-Khudri, a
man from the region of Khaybar, who had been contracted for the upkeep of a plantation, came
to the Prophet (p.b.u.h.) with dates of good quality. When the Prophet (p.b.u.h.) asked him
whether all dates of Khaybar were of similar quality, the man replied in the negative, and added
that they used to obtain a measure of better dates against two measures of ordinary dates, and
two measures against three measures. The Prophet (p.b.u.h.) forbade him from doing that,
and directed him to sell the low quality dates against silver coins, and then purchased the high
quality dates against silver.
This hadith indicates the permissibility of employing a sale contract as a medium for the
purpose of avoiding any involvement in riba, whether overtly or covertly. It is noted that the two
sale contracts employed have fulfilled all conditions and pre-requisites of sales, free of factors
that result in its invalidity. The intention of procuring dates of better quality as the end result
of the transaction has not been considered to invalidate the structure in question. Therefore,
this shows the lawfulness of sale transactions where different purposes are intended when the
medium utilised is acceptable and is free of riba in any explicit or implicit manner. The ‘inah
transaction, being free from any unacceptable condition or clause that results in the invalidity
of the transactions or resulting in riba, should, therefore, be permissible. Moreover, when the
Prophet (p.b.u.h.) required the companion to sell the low quality dates against silver coins and
thereafter purchase dates of better quality, it was not directed that both transactions should
not be contracted with the same individual, that is, the seller of better quality dates. Thus, the
sale to the seller from whom one is to purchase at a later time was not prevented, in spite of the
fact that the money paid by the seller in the first sale was to return to him in the second. Thus,
this has been produced in support of the permissibility of the ‘inah sale.
Critics of ‘inah observe that the hadith in question is of the category referred to in Islamic
jurisprudence as general (mutlaq). It may not be understood to involve different sub entities at
the same time, but may concern only what is most relevant. Therefore, it may not be cited in
support of the permissibility of purchase from one to whom a sale was made previously.

Unit 5 | 16
The validity of the ‘inah sale is also bolstered through incidents involving other Companions.
A narration regarding the Companion Ibn Umar is produced in this regard. Al-Bayhaqi has
recorded that a man sold a saddle to another, who did not pay for it immediately. The purchaser
of the saddle desired to sell it, whereupon the man who sold it wanted to purchase it at a price
less than the price he had sold it for initially. Ibn Umar when asked about it, did not consider it
objectionable, saying, “Even if he sells it to another, he would sell for a price similar to the first
or less.” An incident essentially similar to that has been narrated regarding the tabi’i, appears
in Shurayh too. These two narrations indicate that the Companion Ibn Umar and Shurayh had
upheld the transactions that have been described to be essentially equal to ‘inah. Opponents
argue that these narrations are matched by the narrations from ‘Aishah, Ibn Abbas and others,
which support the condemnation of ‘inah.
Proponents of ‘inah have questioned the appropriateness of casting suspicions at the intention
of the parties involved. The parties involved in the two sale contracts in ‘inah had embarked
on a course of action which is outwardly permissible. The intention of attaining anything
prohibited does not find explicit mention in the contracts concerned. Therefore, it would not
be correct to invalidate their contracts on the assumption that they had intended to achieve
what is prohibited in essence. It is on this basis that Imam al-Shafi’i says in al-Umm:
“The principle I adhere to is that with regard to every contract that is valid in its
external form, I do not consider it invalid due to suspicion or on the basis of any
practice prevalent among the traders; I hold their intention offensive, if the intention
was such that were it to be revealed, it would have resulted in the invalidity of the
contract.”
Opponents contend that adhering to the external manifestation of the contract would be correct
when in the absence of any other indication that points to the contrary. In the case of ‘inah, the
indication exists in the form of customary practices of people which gives a clear picture on the
intention of the transaction. A legal maxim in this regard reads: “What is customarily practised
is similar in force to an explicit condition.” Thus, the strong indication of the illegal intention
must be provided by valid external evidence, rather than the outcome of mere suspicion.
Proponents of ‘inah have pointed out that the validity of ‘inah is borne by qiyas (analogy), as had
been cited earlier in a connection with the reason for Imam al-Shafi’i’s preference of the ruling
established by the practices of Zayd ibn Arqam. This concerns an instance where one purchases
a commodity that he had sold earlier, after the passage of sometime (possibly involving the
complete settlement of dues from the previous sale). In this situation, the purchase is held
valid. Thus, a comparison with this incident dictates that the purchase after a short period

Unit 5 | 17
should also be permissible, as the length of the interval taking place after a previous sale is not
materially relevant to the validity of a subsequent purchase. Another analogy possible here is
that of a person selling what belongs to him to anyone he wishes through a valid contract of
sale at any price, as had been cited earlier in the broad principle adhered to by Imam al-Shafi’i.
Unit 5.3.5 ANALYSIS OF THE PERMISSIBILITY OF ‘INAH

BASED ON THE PREVIOUS EVIDENCE
Further investigation into the matter reveals a unanimous opinion among the jurists that when
the two contracts are made conditional via explicit manifestation, the sale of ‘inah is invalid
and unenforceable. The juristic difference only pertains to instances where the contracts are
not conditional to each other and the contractual texts do not indicate the intention to carry
out another contract. The difference in this matter is observed to be based on the different
juristic approaches adopted by each party that are intrinsically related to broad legal principles
that apply over a vast area of law. Thus, the legal position on ‘inah is not a matter that has been
decided in isolation, i.e., based on factors peculiar to ‘inah itself. Rather, the methodology
used to derive legal rulings adopted by jurists, which is profoundly affected by its position on
fundamental issues such as the admissibility of hiyal or legal stratagems, the significance of
motive and intention in contracts, sadd al-dhara’i or closing of avenues, the legal validity of
fictitious contracts and original permissibility of transactions (ibahah asliyyah), is seen to have
dictated its position on ‘inah as well.
However, it could be noted that on the whole, those who oppose ‘inah have done 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. In forming this assumption,
they have taken into consideration the implicit reason for the succession of the two contracts
one after the other, and have decided that the accompanying indication here is strong enough
to forbid such contracts altogether, even where there is no reason to believe that the parties
had entered into an explicit or implicit agreement to carry out the contracts in this particular
manner. Thus, ‘inah is prohibited by them on the basis of shubhah al-riba (suspicion over the
intention to do riba), or for the purpose of closing avenues leading to what is prohibited, even
where the contracts involved happen to be complete in every way, such as being free of legal
shortcomings in the form of invalid conditions or the transactions being conditional to each
other, and the transfer of possession takes place after each contract in an acceptable manner
with the commodity being delivered to the other party.

Unit 5 | 18
On the other hand, the proponents of ‘inah assumed that since there is no agreement between
the parties to carry out the transactions, consecutively, any assumption to that effect casts
unwarranted suspicion on the transactions of Muslims. They further argued that when the
contracts themselves are free of any factor dictating its invalidity such as unlawful conditions,
linking the transactions and so on, the contracts should be held as valid; any foul intention
being a matter that would not affect the validity of the contract. From this basis, their position
is seen to extend to include situations where there are circumstantial indications that the
parties intend to carry out two transactions in succession, and that the first contract, although
complete in all necessary requirements, is not supposed to be the final. With regard to such a
situation, the proponents have adhered to their original position on the influence of intention
on the validity of contracts, questioning the soundness of the principle of closing the avenues.
They insist that in spite of any external evidence of a link between them, the contracts, although
reprehensible, would still be valid, as long as the contractual texts are externally free from
any illegal factors such as the mention of a contract being conditional to the other, and other
requirements such as transfer of possession are duly fulfilled. The contracts, when completed
legally, would be valid and enforceable, despite any intention to the contrary on the part of the
contractors. If there is any illegal intention, then this would be judged by Allah (s.w.t.). Human
beings will only rely on things that transpire before them.
However, would it be permissible from the Shari’ah perspective for the parties themselves to
enter into such contracts by relying on the contracts’ legal validity? Here, the proponents of
‘inah, Imam al-Shafi’i in particular, has produced the unique legal theory of differentiating
between permissibility (jawaz) and validity (sihhah) which are discussed below.

Unit 5 | 19
Unit 5.4 THE RELEVANCE OF INTENTION TO ‘INAH
An important aspect that contributes to the divergence of opinions pertaining to the legality of
‘inah is motive, or intention. As mentioned before, opponents of ‘inah resorted to invalidating
the contracts based primarily on the foul intention assumed to be held by the participants of
‘inah, taking the end result of the two contracts into consideration. Proponents, on the other
hand, rely on the external manifestation of the intentions in the form of the contractual texts
which form the only legally acceptable pronouncements about the motives and intentions of
the parties. Based on this premise, they validated the contracts, refusing to give credence to
any unrelated factor in this regard, treating it as imputation. Thus, the contract of ‘inah is
invalid according to jurists of the Hanafi, Maliki and Hanbali schools of law, The Hanafi jurist,
Muhammad ibn al-Hasan, has expressed his strong reservations about ‘inah, considering it
as an evil mode developed by devourers of riba. ,Hanbali jurists, too, prohibit sales where the
motive is to attain what is prohibited.
It should be made known here that with regard to taking the motive of the contractors into
consideration in determining the validity of contracts, Islamic schools of law are observed to
have followed two major trends. In the case of the Shafi’i school of law, as well as the Hanafi
school of law, to some extent, the motive of the contractors is not considered relevant to the
validity of a contract. Thus, these schools only consider the external intent of the parties,
as manifested through the contractual text, in deciding a contract’s validity, to safeguard
the basis of consistency in transactions. Looking at the motive and purpose of participants
in each contract would unnecessarily jeopardise the contractual basis, in addition to being
indeterminable with any certainty. Thus, the motive is not regarded to be materially relevant
until it is explicitly stated in the contract. Even in cases where the parties intend to achieve
something prohibited through a lawful contract, this motive alone would not dictate the
invalidity of the contract, because the realisation of the prohibited aspect is something that
may or may not occur in the future. However, while the contract is valid, it would be regarded
to be prohibited or reprehensible, that is haram or makruh, depending on the nature of the
parties’ motive. This means that entering into such contracts is unlawful, and the participants
commit a sin, making them liable to divine wrath and punishment. On this basis, the Shafi’i
school of law considers the sale of grapes to a wine presser as valid, when the purported aim
is not spelled out in the contract. In spite of the validity of the contract, however, the sale is
unlawful or haram, when the seller knows of the ultimate use intended or is reasonably assured
of the fact. Where only suspicions have emerged that the grapes would be used for such athe

Unit 5 | 20
purpose, it would be reprehensive or makruh. Similar cases include sale of weapons to a robber,
the sale of a material that could be used for gambling, the manufacture of musical instruments,
the renting of premises for gambling, and employment for carrying and dealing in liquor.
On the same basis, Shafi’i jurists hold the sale contracts comprising ‘inah to be valid when the
contratcscontracts are free of factors dictating its invalidity. Therefore, where the participants’
motive in the contracts is is to earn riba, the contracts serve only as a pretext, the reality of
which is not intended would be haram or makruh, due to the foul intention. However, the
unlawfulness of this contract in this instance would not interfere with its validity as long as the
foul motive is not explicitly stated in the contract. Therefore, if the parties had carried out the
transactions earnestly, fully understanding and are prepared to undertake the ensuing duties
and liabilities at each stage, the contracts would be valid and lawful according to Shafi’i jurists.
Hanafi jurists, however, despite their practice of deciding the legality of a contract solely on
the basis of its own merits, and considering external factors to be effective only to the extent of
making it unlawful or reprehensive without affecting its validity, have regarded the transaction
of ‛inah in a different light. They regard hiyal or legal stratagems to be fundamentally
permissible as the decisive factor of the contractual text itself. However, according to them,
‘inah is invalid, the reason being the suspicion of the presence of riba (shubhah al-riba). They
hold that suspicion in the matter of riba tantamounts to its reality with regard to prohibitions,
as a necessary measure of precaution.
Jurists of the Maliki and Hanbali schools of law view that the consideration of the motive and
intent of the parties is essential in determining the validity of a contract. According to them, a
contract involving an illegal motive is invalid, i.e., the other party is aware of it or is in a position
to be reasonably assured of it (due to circumstantial evidence that point at that evil motive),
such as a gift made by the enemy to the commander of a battalion, and gifts to government
officials. Based on this position, Maliki and Hanbali jurists have decreed the invalidity of the
contract in the examples previously mentioned. Thus, the ‘inah transaction is invalid because
the mode of sale used here is for the purpose of entering into a riba based contract, while not
having any interest in the purchase and sale of commodities per se. Since it serves as a medium
for attaining a prohibited and illegal contract, it is forbidden, so as to close an avenue that leads
to haram.
On the basis of the above juristic positions adhered to by the jurists of Hanafi, Maliki and
Hanbali schools of law, sales that resemble the ‘inah format are prohibited by them, even when
each sale happens to be entirely spontaneous. Therefore, after selling a commodity on credit,
or according to Hanafi jurists, before receiving the price in a cash sale, the seller is not allowed

Unit 5 | 21
to repurchase it from the buyer, even if the idea to repurchase it occurred after the first sale and
there was no motive of riba. If the second contract is finalised, Maliki and Hanbali jurists rule
both contracts invalid, while Hanafi jurists only invalidate the second contract. Shafi’i jurists
regard both contracts valid in all situations except where one contract is explicitly related to the
other in the contractual text.
Unit 5.4.1 INTERCONDITIONALLY IN ‘INAH
Bank Negara Malaysia (BNM), in several discussions with Islamic banks, has raised the issue
of interconditionality in bay al-‘inah contracts which has become an issue in the market lately.
The interconditionality of contracts cannot be stipulated in any documents including the Master
Facility Agreement (MFA) and Letter of Offer (LO). Even though the Shari’ah Advisory Council
(SAC) of BNM has published in its resolution number 73 on the prohibition of interconditionality
of the contract, most of the banks are unclear with regards to the interpretation and application
of the resolution.
Shari’ah Advisory Council’s Resolution on ‘Inah
The SAC of BNM has resolved few rulings with regard to bay al-‘inah and its application in
banking products and services.
The SAC, in its 16th meeting dated 11 November 2000 and 82nd meeting dated 17 February 2009,
has resolved that a valid bay ‘inah contract shall fulfil the following conditions:
1. Consists of two clear and separate contracts, namely, a purchase contract and a sale
contract;
2. Has no stipulated condition in the contract to repurchase the asset;
3. Both contracts are concluded at different times;
4. The sequence of each contract is correct, whereby, the first sale contract shall have been
completed before the conclusion of the second sale contract; and
5. The transfer of ownership of the asset and a valid possession (qabd) of the asset in
accordance with Shari’ah and current business practice (urf tijari).1
1
SAC BNM p. 113.

Unit 5 | 22
The SAC, in its 8th meeting dated 12 December 1998, has resolved that the transaction based
on bay ‘inah in the Islamic Inter-Bank Money Market is permissible, subject to the following
conditions:
1. The bay al-‘inah transaction shall follow the methods acceptable by the Shafi’i school
of law; and
2. The transacted goods shall be non-ribawi items.
The SAC, in its 82nd meeting dated 17 February 2009, has resolved that the stipulation to
repurchase the asset in a bay al-‘inah contract will render the contract as void.
With regards to the issue of intercondionality of the ‘inah contract, it is known in the resolution
of the SAC as the Stipulation to Repurchase an Asset in a Bay al-‘Inah Contract. The SAC was
referred to on the issue of whether the stipulation to repurchase the asset (interconditionality)
may be incorporated into both agreements of bay bithaman ajil (BBA) based on bay al-‘inah,
namely, the Property Purchase Agreement and the Property Sale Agreement for home financing
concluded between the Islamic financial institution and the customer. This stipulation to
repurchase is normally included in the document that indicates the seller’s undertaking to
repurchase the asset from the buyer, especially in the recital of the agreement, marketing
brochures, supplementary documents, appendixes and others.
Resolution
The SAC, in its 82nd meeting dated 17 February 2009, has resolved that the stipulation to
repurchase the asset in a bay al-‘inah contract will render the contract as void.2
Basis of the Ruling
This resolution is based on the opinion of the majority of scholars, which states that the
incorporation of a condition to repurchase the asset in a bay al-‘inah contract will annul the
contract:
1. Al-Nawawi stated that scholars unanimously view that the stipulation to repurchase
linked to another contract annuls the contract;
2. In Hasyiyah al-Sawi ‘ala Syarh al-Saghir, there is a view stating that the offer and
acceptance (sighah) in a bay al-‘inah contract which represent interconnection or
interrelation between the two sales contracts will adversely affect such sales contracts;
SAC BNM p. 114.

2

Unit 5 | 23
Dr. Yusof Al-Qaradawi in his response to the sale of a slave by Ummu Walad Zaid bin
Arqam stated that such bay al-‘inah is allowed if there is no pre-arrangement (tawatu’)
to repurchase the slave and it does not amount to riba.
Point of Discussions
There are several practices with regards to products which may relate to the issue of
interconditionality:
• What amounts to an ‘aqad or contract? Is the Master Facility Agreement (MFA),

Letter of Offer (LO) and Principal Terms and Conditions (PTC) considered as part
of an ‘aqad?
• What would amount to a shart or condition in contract?
The current practice of ‘inah in home financing
There are two (2) approaches to conclude an ‘inah contract:
1. The PPA and PSA are separate documents and part of the legal documents of the
facility
The legal documents shall comprise the Master Facility Agreement (MFA), Principal Terms and
Conditions (PTC) and Letter of Offer (LO) that have been agreed upon prior to the execution
of the contract. The documents constitute an overview of the financing facility inclusive of the
product structure, terms and conditions, the purchase price, the selling price, financing period,
payment schedule, method of financing, covenants and so on. Practically, these documents
indicate an offer of the bank to provide the facility and it is just a mere expression of a customer’s
intention, or a declaration of his willingness to enter into the contract. As such, it is observed
that the actual contract of exchange (sale & purchase) not yet executed at the moment the
customer executes the letter of acceptance in the legal documents since these documents
(with exception of PPA and PSA) are merely memorandum of understanding (tafahum janibi)
between the bank and the customer and not considered as contract (‘aqad). the ani
In this structure, the sale and purchase agreements are executed separately from the other legal
documents.
2. The sighah (offer & acceptance) is embedded in the PPA and PSA
The execution of the Property Purchase Agreement (PPA) and Property Sale Agreement (PSA)
will be concluded subsequent to the acceptance of the LO by the customer. It is an established
fact that PPA and PSA are considered as the main contract since there will be no other documents

Unit 5 | 24
to manifest the tafahum janibi. The PPA and PSA contain several segments to it such as the
preamble, recitals, the sighah or aqad and operative terms and condition which are within the
MFA prescribed in Section 5.1. The agreements stated the offer (ijab) and acceptance (qabul)
of the sale and purchase transaction whereby the PPA and PSA shall be executed in proper
sequence.
The sample narration commonly found in the recital of financing documents in Section 5.1 and
5.2 read as follows:
The Customer has applied to the Bank for a financing facility (hereinafter referred to as “the
Facility”) and the Bank has approved the said application and in accordance with the financing
procedure of the Bank under the Syariah principle of Al-Bai Bithaman Ajil, the Customer agrees
to sell to the Bank and at the request of the Customer, the Bank agrees to purchase from the
Customer the Property for the purpose of immediately re-selling the Property to the Customer
upon deferred payment terms.
In the above clause, the word “the purpose” indicates the objective of the client in signing the
contract which is a form of intention disclosed by him and promise initiated which is not binding
and has no legal enforcement. The clause has no contingency effect on the second contract and
does not create any legal connectivity, where the client is not under a legal obligation to execute
the following contract (in case there is a decline from the client to execute the second contract
there is no room for the bank to take any legal action against him). Therefore, the clause cannot
be regarded as interconditionality in the contract.
View of scholars on the above issue
According to Shaykh Dr Abu Sattar Abu Ghuddah in his paper “Tafahum Janibii Fi majal al
uqud (Memorandum of Understanding in Contracts)” presented in the Al-Baraka Symposium
on Islamic Economic in 2000, tafahum janibi is a form of mutual understanding between
contracting parties. It lies between the concluded ‘aqad and intention to enter the contract.
Normally, the form of understanding may exist in various forms and not limited to the Letter
of Understanding and Terms Sheet. Classical literature refers tafahum janibi as Al-Muwadho’ah
(an agreement between contracting parties on certain conditions prior to the execution of the
contract in the future) and Al-Muwatoah/ Al-Tawatu’ (an agreement made by parties who have
mutual understanding on certain matters) which is mostly discussed by the previous Islamic
jurist.
Based on his presentation, the characteristics of tafahum janibi can be summarised as follows:

Unit 5 | 25
Tafahum janibi is a preliminary agreement or a period which allows the contracting

parties to pre-plan or have an earlier overview of a contract before entering into it.
Therefore, the resemblance of an interconditionality element does not exist even though
all the process flow of the transaction has been stipulated.
Having the benefit of mutual understanding can only be achieved before and/or during the
‘aqad execution. Any understanding reached after the ‘aqad execution will be regarded as an
amendment of the contract.
Mutual understanding is affected by urf (customary practice) as long as it does not contradict
the Shari’ah. In the event of unperfected mutual understanding, then the urf will be referred
to. This is in line with the legal maxim that says:
‫املعروف عرفا ًكاملشروط شرط ًا‬
which means, “A thing known by common usage is like a stipulation which has been made”.
In discussing the article of Shaykh Dr Abu Sattar Abu Ghuddah, Dr Wahbah Zuhayli agreed
with the proposition that tafahum janibi is not a binding contract and wa’d (promise). Dr
Wahbah Zuhayli is of the opinion that the parties that has performed tafahum janibi are free
and not bound by the tafahum janibi, i.e., the agreement made between them. Hence, any
breach of the tafahum janibi is not a legal breach of the agreement but only a “religious breach”
or wrongdoing, between the contracting parties.
Shaykh Dr Nazih Hammad, in Al- Muwataah Ala Ijra’ Al- Uqud A-L Mutaaddidah Fi Safqah
Wahidah.The author highlights the following in deliberating the the concept of muwataah
(pre-agreed conditions prior to execution of ‘aqad):
Hanafiyyah, Zahiriyyah, Syafi’yyah and Ahmad opined that the initial agreed condition prior
to the execution of the contract does not signify the condition during the contract and it does
not affect the original contract. Hence, the initial condition is not necessarily implemented in
the contract and it could be retracted because anything that has been agreed before the ‘aqad
execution, in terms of condition arrangement is not applicable as the condition is independent
and not required to be bound by contracted parties. Al-Imrani in his book, Al-Bayan, mentioned
that if a valid condition agreed before the ‘aqad execution, it does not impact the ‘aqad. At the
same time, it does not invalidate the ‘aqad if the condition is defective. Imam Nawawi in his
book, Al-Majmu’, mentioned the same.

Unit 5 | 26
Hanabilah and Malikiyyah viewed that the initial condition is as good as the condition that
is considered as a part of the validation of the ‘aqad. When the contracting parties agreed on
the condition and then they executed the contract, it is as if they agreed to the condition.
Therefore, there is no difference between a condition that is being concluded as a part of the
contract, and a condition that has been agreed before. Even though, the initial condition is not
clearly stipulated in the contact, it is still considered binding since the silent condition takes
the same effect as he stipulated condition. Ibnu Taymiyyah offers the same view in his book,
Nazariyyatu Al-Aqd, where he mentioned that an initial condition of an ‘aqad is attached to
it. If a contract has been pre-arranged then it is concluded that anything that has been pre-
arranged is brought into the contract. He also mentioned the same in Fatawa Al- Kubra.
Dr. Nazih Hammad viewed that the Al-Muwatoah (pre-determined condition) carries the
same effects as the actual contract in terms of its binding obligation and ruling. As such, the
condition goes together with the obligation to fulfil the promise. As such, the contract is already
established in accordance with the pre-determined condition between the contracting parties.
Recently, the SAC has come out with a formal decision on the issue of interconditionality. The
interconditionality cannot be mentioned neither in the document nor in the Letter offer /LO.
Summary of the resolution of the SAC of BNM
The Shari’ah Advisory Council of Bank Negara Malaysia has, in its 128th meeting on 25
September 2012, approved an enhanced resolution on bay al-inah which stipulates the essential
Shari’ah conditions related to bay al-‘inah transactions, and provides further clarifications to
these bay al-‘inah conditions. This enhanced resolution is expected to strengthen the conduct
of bay al-‘inah transactions by Islamic banking institutions.
The circular on the implementation of the SAC resolution on bay al-‘inah aims to:
1. Outline the Shari’ah compliance requirements on bay al-‘inah; and

2. Set out the supervisory expectations in terms of operational requirements to ensure
Shari’ah compliance and desired implementation date.
Shari’ah compliance requirements
Islamic banking institutions must satisfy all valid bay al-‘inah conditions as stipulated in the
enhanced SAC resolutions as follows:

Unit 5 | 27
1. The purchases of asset and subsequent sales of the asset under bay al-‘inah must be
concluded in two clear and separate agreements which comply with the following
elements:
(a) Both sales and purchase agreements must satisfy all necessary conditions of a valid
sale and purchase contract under Shari’ah;
(b) The sale and purchase agreements may be developed based on generally accepted
market practices (urf), which include written documentation or verbal recording;
and
(c) Written documentations of both sale and purchase agreements must be prepared
and represented by two separate set of documents.
2. The sale and purchase agreements must not stipulate any terms and conditions or create
an obligation for both transacting parties to repurchase or resell the subject matter of
sale. Failure to observe this Shari’ah requirement may render the agreements to be void
from Shari’ah perspective. Therefore, Islamic banking institutions must ensure that all
documentary evidence used in bay al-inah transactions have the following features:
(a) does not stipulate in any parts of these documents, the terms and conditions for
contracting parties (seller and purchaser) to repurchase or resell the subject matter
of sale; and
(b) does not describe in any manner that the whole bay al-‘inah transaction and the
sequence of executing bay al-‘inah transaction creates an obligation for both
contracting parties to repurchase or resell the subject matter of sale.
3. The execution or signing of both sets of sale and purchase agreements must be executed
at different intervals. Ex parte execution of both documents simultaneously by any
contracting party in a bay al-‘inah transaction will render the contract to be void from
the Shari’ah perspective. In this regard, Bank Negara Malaysia expects Islamic banking
institutions to record the time (time stamp) of execution or signing of both agreements
as evidence of compliance to this Shari’ah requirement.
4. The sale and purchase agreements must be executed in a proper sequence, whereby,
the seller must completely sell specific assets to the purchaser by executing the first sale
and purchase agreement. Subsequently, both parties may agree to enter into another
sale and purchase agreement to purchase and sell specific asset. In this regard, both
contracting parties in the bay al-‘inah transaction are required to fully observe the
following Shari’ah requirements:
(a) The seller must endorse the offer to sell the asset to the purchaser by initiating
the signing of the sale and purchase agreement, followed by the signing of the

Unit 5 | 28
same agreement by the purchaser as an endorsement of acceptance to purchase

the asset;
(b) The contracting parties in the subsequent sale and purchase agreement must
properly execute this document in the manner described under paragraph
mentioned above;
(c) Neither contracting parties to the bay al-‘inah transaction shall endorse both sets
of sale and purchase agreements by pre-signing these documents; and
(d) Any contracting party in the bay al-‘inah transaction must not provide either
written or verbal promise to repurchase or resell the subject matter of sale.
5. The ownership in the subject matter of sale in the bay al-‘inah transaction must be
effectively transferred from the seller to the purchaser. The transfer of ownership shall
result in the purchaser’s having full rights and control of the asset under a permissible
Shari’ah mechanism and generally accepted trade practices (urf tijari). The purchaser
is regarded to have the ownership in the underlying asset through physical possession
(al-qabd al-haqiqi) or constructive possession (al-qabd al-huqmi).

Unit 5 | 29
Unit 5.5 TAWARRUQ CONTRACT
The structure of a tawarruq is a contract is becoming increasingly popular as a means of financing

in the modern Islamic financial system. Short term financing, where various adaptations of
murabahah were employed as the standard mode by many Islamic banks, is actually structured
based on the tawarruq principle. It provides Islamic banks with a much needed addition to
the array of financing products that are in line with Shari’ah principles. Despite its increasing
popularity, there exists some controversies pertaining to its admissibility as a genuine Islamic
product. The modern application of tawarruq developed by Islamic banks incorporates several
features that have been expounded by traditional jurists. However, certain variations can also be
found in these two practices. While the original tawarruq is considered to have consisted of two
contracts of sale, modern adaptations usually comprise three, or possibly more. The primary
reason for this distinction is that the banking institution, acting as a mere intermediary, does
not possess the commodities that could be readily brought into the tawarruq financing process
and therefore, is in need of liaising with a trader, usually an external party, for the purpose of
facilitating the tawarruq contract. Similarly, the disposal of such commodities by the client of
the facility sometimes needs to be further simplified by the mediation of an agent. Thus, the
product in its final shape, is to a larger extent, more complex, and also more streamlined than
the simple form of tawarruq debated by classical jurists. As a corollary to the smoothness of
the whole operation, there is also the undeniable danger of the transactions merely becoming
a formality followed on paper without a proper regard to the material aspects that should be
necessarily involved. These additional aspects and other variations that have been introduced
have further fuelled the controversy on its admissibility as a mode of financing. The basic
objection to such modes is that the explicit reason for embarking upon such a facility is nothing
but to obtain cash immediately to be paid more at the later time. This might lead to a riba based
relationship, with the transaction only acting as an unessential formality.
Despite its recognition in its original classical form by several contemporary bodies of Islamic
scholars, different types of tawarruq offered by various Islamic banks remain a heavily discussed
issue among scholars in the field. While some recognise it as a fine and excellent addition to
Islamic financing techniques, others do so only with caution and with stringent conditions
imposed. There are also others that refuse to accept its admissibility. Our discussion of tawarruq
in this unit focusses on the following major areas: the nature of tawarruq as conceived by jurists,
the position of Islamic schools of law and of individual scholars on its admissibility, and the

Unit 5 | 30
nature and the level of recognition awarded to financing products developed by Islamic banks
on the basis of tawarruq.
Unit 5.5.1 ARGUMENTS IN FAVOUR OF TAWARRUQ
Scholars who have upheld the permissibility of tawarruq have fundamentally relied on the
general connotation of the verse permitting sale while prohibiting usury. The terminology of
this verse, according to the scholars of usul al-fiqh, clearly indicates the overall permissibility
of all types of sale and trade, except where a particular type is specifically prohibited. The
prefix, “al”, used in the term refers to sale (al-bay’), which indicates universality, thus ruling
all methods of sale lawful, except in instances where a particular type is excluded from this
generality through evidence that rules its prohibition. Tawarruq, as a type of sale, is included
in this universal permissibility and remains lawful due to the absence of any Qur’anic verse
or hadith that rules it unlawful, or the practice of the prophetic Companions indicating its
impermissibility.
A hadith recorded by al-Bukhari and Muslim has been cited in support of tawarruq. The hadith
reported by the Companion Abu Sa’id al-Khudri narrates that a man from the region of Khaybar
who had been contracted the upkeep of a plantation came to the Prophet (p.b.u.h.) with some
dates of good quality. When the Prophet (p.b.u.h.) asked him whether all the dates of Khaybar
were of similar quality, the man replied in the negative, and added that they used to obtain
a measure of better dates against two measures of ordinary dates, and two measures against
three measures. The Prophet (p.b.u.h.) forbade him from doing that, and directed him to sell
the low quality dates against silver coins, and then purchase better quality dates against silver.
This hadith indicates the permissibility of employing the described method for avoiding the
involvement in riba (whether overtly or covertly); the medium of a sale is employed, which
fulfills all conditions and pre-requisites of sales, free of factors that result in its invalidity. The
intention of procuring dates of better quality as the end result of the transaction has not been
considered to invalidate the structure in question. Therefore, this shows the lawfulness of sale
transactions where different purposes are intended when the medium utilised is acceptable
and free of riba in any explicit or implicit manner. Therefore, attaining liquidity through a
medium such as this should be permissible when needed.
The original rule of permissibility has also been argued to support the argument for validity.
This means that in essence, all transactions are declared permissible, except when there is
evidence regarding a particular transaction to the contrary. On this basis, a large number of

Unit 5 | 31
contracts where no explicit directions pertaining to their permissibility or otherwise are found
would be deemed permissible. Accordingly, tawarruq, too, would be ruled lawful, due to the
absence of any explicit evidence to the contrary. The result of this supposition is that the
permissibility of tawarruq needs no proof. Demand for proof would be made from one who
denies its permissibility, as his assertion goes against the primary status regarding all contracts.
In addition to the above argument,, al-Kasani argued that the change in ownership that takes
place has amounted to the exchange of the asset, thus ruling out the possibility of practising
riba in the structure. Scholars who have upheld the permissibility of tawarruq have also taken
into consideration the need for such avenues for obtaining liquidity. Credit without interest
may not be accessible on many occasions, and one could be averse to borrowing, even without
interest, and may not like the prospect of availing oneself to donations, even when such free
funds are available. The purpose of employing this mode to obtain cash has not been regarded
by the scholars as serious enough to dictate its prohibition or disapproval. This purpose could
be considered common to all types of trade, as all traders aim to acquire more money by using
fewer goods and merchandise acting as a medium in realising this goal. According to them,
employing such means would be reprehensible only when both the purchase and sale are
transacted with the same individual, as in the case of ‘inah, since in that situation, the intention
of riba is prominent.
Unit 5.5.2 ARGUMENTS AGAINST THE VALIDITY OF

TAWARRUQ
Scholars who disapprove tawarruq have mainly concentrated on the aspect of intention. They
argued that the intention here is to procure money, which could be tantamount to the sale
of money against a different amount of money, while the asset serves only as a medium, the
acquisition of which, is not primarily intended. Therefore, the structure strongly connotes the
possibility of a legal stratagem adopted for this purpose. Thus, a major reason for the disapproval
of tawarruq is that it appears to be a hilah adopted for the attainment of what could otherwise
be riba. This is the primary reason for the condemnation of ‘inah as well. As has been answered
by Ibn Abbas, when asked on its permissibility, “It is money against money, with a piece of silk
cloth pushed in between.”
Scholars argue that considering the end result of the procedure is important in determining the
permissibility of a particular structure. As the main reason for practicing tawarruq is to obtain
cash immediately, for a higher consideration later, it should be prohibited since it is identical
to the practice of riba.

Unit 5 | 32
The principle of closing of avenues (sadd al-zara’i) is also another important argument cited in
support of the illegality of tawarruq. It is feared that this would be taken as a ruse to circumvent
the prohibition of riba. Opponents of tawarruq cite a few hadith that are understood to condemn
the sale of ‘inah, arguing that tawarruq also falls under the same category because the purpose
of both practices is to attain liquidity against the obligation to pay a higher amount in the
future.
The Hanbali scholar, Ibn Taymiyyah, appears to be among the staunch opponents of tawarruq.
He has taken the position that tawarruq is similar to ‘inah as the purpose is the attainment of
money. He considers ‘inah to take place usually between a capital provider and a person in need
of cash for expenses. The capital provider sells him an asset instead of the cash needed, so that
he may acquire some gain through the transaction. When the seeker of funds sells the asset back
to the first, it is ‘inah, and if it is sold to another, it is tawarruq. If it is transferred to a third party,
who is brought in as an intermediary (one who returns the asset to the first), the third party
would be the muhallil, that is, one who acts as a legitimiser of riba for the first. Ibn Taymiyyah’s
disciple, Ibn al-Qayyim, has reported that Ibn Taymiyyah refused to allow tawarruq whenever
he was consulted on the subject, saying that the reason that had dictated the prohibition of
riba is present in tawarruq, in addition to which, the trouble of purchasing the asset, selling it
and accepting a loss is also undertaken by the person requiring funds. Ibn Taymiyyah regarded
it improbable that the Shari’ah would allow greater harm while prohibiting a lesser one, that
is, riba. He has quoted the statement ascribed to Umar ibn Abdul Aziz that tawarruq is the
brother of riba. Ibn al-Qayyim, adopting a similar stand, equates tawarruq to ‘inah, as both are
adopted as mediums towards realising riba.
In some instances, Ibn al-Qayyim is reported to have also referred to another objectionable
factor found in tawarruq, namely, it being a sale to a person under duress, called bay al-mudtarr.
In this particular argument, a number of hadith that condemn the sale to a person who is
compelled to enter into the contract are also cited in support.
In their refutation of the claim that tawarruq falls under the prohibited category of hiyal, the
proponents of tawarruq point out that there is no harm in adopting means that are lawful in
themselves, even when the means is not originally intended, that is, when they are simply for
attaining other purposes. Adopting devices and stratagems becomes objectionable only when
they result in the violation of a fundamental principle of Shari’ah or damages an advantage that
is recognised by it. When the hilah adopted does not violate any such principle or cause harm
to any advantage, it would not be included in the stratagems that have been condemned. The
tawarruq structure has not been expressly prohibited in any hadith, and could not be held to

Unit 5 | 33
result in causing damage to any advantage. In fact, it is advantageous, because the need for
liquidity is effectively fulfilled through the adoption of this structure.
The proponents argued further (as has been shown earlier), that tawarruq is dissimilar to ‘inah.
While ‘inah involves only two parties who act in interchanged capacities in the two contracts,
tawarruq takes place in a tripartite arrangement. The participants in tawarruq intend to avoid
the possibility of riba by adopting a legal sale as the means of obtaining liquidity.
As for tawarruq being a sale done under duress, this does not seem to be a correct assessment of
its background. The sale to a person under duress has been understood by jurists in two ways.
One is the case of a person who is made to carry out the contract forcibly, that is, under a threat.
The contract in this situation is not valid in most instances, i.e., when the threat is genuine.
The other way is where a person is compelled to sell what he owns for the purpose of settling a
debt or for obtaining money for urgent needs. In the case of tawarruq, one is not selling away
his belongings for fulfilment of such needs. It is a matter of obtaining cash through the mode
of sale and purchase. Although there should be some need that he wishes to fulfil by cash, it
would not turn the transaction into one done under duress. In fact, all transactions are arguably
undertaken for fulfilment of needs. It should be noted that even when one sells his belongings
for fulfilling needs, the sale is valid. If there happens to be any sin, it would be on those close to
him who had failed to lend him money or donate in spite of knowing his predicament.
With regard to hiyal, an important principle that is necessarily drawn is intention. According
to the Prophetic tradition, actions are decided on the basis of intentions, and every person
will be rewarded based on his intention in doing certain actions. If one had intended what is
permitted, it would be acceptable and blameless. On the other hand, if what one had intended
is wrong, the action would be judged blameworthy.
The principle cited by Shafi’i jurists is relevant in this regard. They state that when the wording
of a contract is explicit, and is not in need of any further explanations, the intention of the
party would not be pried into. Verification of intention is only necessary where the wording is
imprecise or ambiguous. Otherwise, the intention is taken to be correct and legal.
As for the attainment of money being the purpose of the transaction, this is not an unlawful
purpose in itself. Assets are purchased sometimes for the purpose of its utilisation and to
derive benefit from it, and sometimes, for obtaining returns. Both of these motives are valid
and justifiable. The benefit can also be derived from the asset by reselling it to a third party
and getting a return out of this activity. Nothing is wrong with that intention. In fact, it is the
intention of every trader to purchase things for the purpose of reselling them at a higher price.

Unit 5 | 34
Therefore, when the purchaser intends a resale of the asset at the inception of the transaction
itself, this would not be unacceptable. If sales were to be prevented simply because the intention
happens to be acquiring cash through resale, it would result in violating a fundamental right
of the purchaser to property.
Proponents of tawarruq deny the possibility of invoking the principle of closing of avenues
(sadd al-zarai’) for disallowing tawarruq. This is because avenues should be closed only when
there is a well perceived danger of the mechanism leading to a prohibited action. In the case
of tawarruq, this is not the case. Tawarruq could not be counted with certainty that it will
definitely lead to a prohibited action. Therefore, it would remain permissible under the concept
of presumption of permissibility. The Shari’ah has resorted to the prohibition of transactions
only where there is a comprehensible reason such as the possibility of their leading to oppression
and violation of rights or creating enmity and friction among people. The prohibition of riba in
loan transactions, monopoly, deception, gambling and so on becomes meaningful when their
disadvantages are perceived. As far as tawarruq is concerned, there could be no perceptible
harm in its permission, thus it would remain permissible.
Unit 5.5.3 ARGUMENTS IN FAVOUR OF ORGANISED

TAWARRUQ
Some contemporary writers consider the procedure of organized tawarruq currently

implemented to be acceptable on the basis that each component of the procedure is valid from
the Shari’ah point of view. When each of the individual contracts and processes involved happen
to be valid, there is no reason to consider the whole procedure unacceptable. The tawarruq
procedure, according to them, consists of the following contracts and transactions, each of
which could be justified in itself:
1. The bank’s purchase of a commodity from the commodities market and taking possession
of it through the necessary clauses in the transactional documents, on the basis of the
promise to purchase made by the client.
2. Sale of the commodity to the client on a murabahah basis and the latter taking possession
constructively.
3. The client appoints the bank as his agent in the sale of the commodity.
4. The bank sells the commodity to a third party.
5. The bank hands over the received price to the client.

Unit 5 | 35
Though many of these issues have been discussed in the section related to murabahah, a passing
discussion will also be provided here, to facilitate the reader’s understanding.
The first of the above contracts being a contract of purchase, is essentially permissible. The
legal nature of the promise to purchase the commodity subsequently that is made by the
client has been a subject of disagreement among the jurists, in that they argue whether such a
promise could be legally enforceable or otherwise. If both parties involved in the transaction
make a mutual promise to carry out a sale between them subsequent to the initial purchase
by one of them, Imam al-Shafi‛i has ruled the transaction as invalid. However, a unilateral
promise made by one of the parties to purchase the item would not involve this drawback. It
is due to this reason that many of the banks require the client to make a unilateral promise by
undertaking to purchase the commodity, without any such promise made by the bank to sell it
to him. However, whether the client could be legally required to honour his promise is an issue
of dispute. Many jurists have upheld the position that promises may not be legally enforced.
However, taking the needs of the current commercial environment into consideration, many
contemporary scholars have endorsed the position that promises could be legally enforced in
commercial contexts subject to certain conditions, similar in essence to the preferred position
of some Maliki and other jurists.
The second contract is a sale to the client, usually on a murabahah basis, that is, cost plus
mark-up, where the item is sold to the client with an agreed element of profit added to the
cost undertaken by the seller. Payment by the client is usually agreed on an instalment basis.
As discussed under murabahah, jurists in general, recognise the validity of a sale transaction
where the commodity is sold for a price higher than its usual cash price, due to the sale taking
place on credit, provided all the necessary ingredients of a sale are fulfilled. Many contemporary
scholars in the field of Islamic finance have also upheld this position.
The third contract is a contract of agency, where the client, who has become the owner of the
commodity, appoints the bank as his agent to sell the commodity. Agency is a valid Islamic
contract which could be done either on a fee basis or free of charge. There is no barrier to
the purchaser appointing the seller himself as his agent to sell, as the parties being capable, a
contract of agency could take place between them without any hindrance. Since the client is
entitled to sell the item himself, he is legally at liberty to appoint any other as his agent for this
purpose. Thus, the agent appointed, in this case the bank, could carry out the sale and forward
the proceeds of the sale to the principal, that is, the client.
Arguing on the above, proponents of tawarruq insist that the organised tawarruq offered by
some Islamic banks is essentially similar to the simple tawarruq recognised by the jurists.

Unit 5 | 36
The vital aspects of the classical tawarruq procedure have been fully observed and followed
in the organised tawarruq practised by these Islamic banks, the only difference is that the
latter happens to be organised and has a smoother procedure,, so the whole process could be
concluded in a short period of time. The swiftness of the procedure could not be regarded as
a shortcoming necessitating its invalidity. Similarly, organised tawarruq which uses metal as
its underlying asset could not be a reason for its rejection. The additional aspects involved in
tawarruq could be considered similar to the introduction of “a unilateral promise to purchase”
to the classical murabahah contract. The fiqhi tawarruq itself has been presented by Islamic
banks in a manner that ensures convenience and swiftness of execution. Thus, they argue
that treating modern tawarruq as an individual entity that should be studied apart from fiqhi
tawarruq is unjustifiable, in that the former is only a modern manifestation of the latter,
presented in line with the prevalent commercial trends and financial environment.
Similarly, it may not be claimed that the adoption of tawarruq for facilitating liquidity could
move Islamic banks further away from advancing other genuine modes of financing. This is
because, in addition to tawarruq, there have always existed other modes such as salam and
istisna’ that are not investment modes in themselves. The addition of tawarruq to such
products that are already available could not be regarded as detrimental to the concept of
Islamic banking. If tawarruq tends to be misused, such misuse should be prevented by taking
appropriate measures, not by disallowing it in totality. Banning tawarruq completely may not
be the solution in such an instance.
In addition to the above, arguments supporting fiqhi tawarruq are also resorted to for vindicating
the practice of organised tawarruq, due to the premise that both are essentially the same. Thus,
proponents of organised tawarruq justify it as a valid structure which Islamic banks could legally
employ for facilitating liquidity. It could be effective in realising the economic philosophy of
Islam and could fulfil the needs of individuals and institutions. It is an important avenue that
could be employed by states for financing trading deficit and obtaining the necessary liquidity,
to replace the practice of issuing conventional bond instruments that involve the practice of
interest.
Unit 5.5.4 ARGUMENTS AGAINST THE PRACTICE OF

ORGANISED TAWARRUQ
According to the opponents of organised tawarruq, this contract offered and carried out by
some Islamic banks strongly indicates a willing cooperation aimed at supplying cash against a
higher credit obligation. Thus, the principle dictating the assessment of actions on the basis of

Unit 5 | 37
their intended objectives becomes relevant in this context. The intention of the client to gain
immediate cash at the cost of paying a higher amount in the future takes a tangible and evident
form readily expressed to the bank through the contractual documents, agencies and the
memorandum of understanding. The express purpose of tawarruq here is to obtain liquidity,
which is also applicable to fiqhi tawarruq. However, the role played by the bank is not limited
to being an intermediary in the process of acquiring real goods, as is the case in murabahah.
The banks are effectively involved in earning a return through facilitating liquidity, against
deferred debts of a higher amount than the amount of cash received by the client. The banks
have no interest in providing the commodity to the client itself. Thus, two objectives have come
together in organised tawarruq in a plainly visible manner, namely, the intention of the bank
to part with cash against a higher amount receivable in the future, and the client’s intention
to receive cash against a future debt of a higher amount. Thus, the strong resemblance borne
by tawarruq to a hilah for attainment of riba appears prominent. Throughout the process, the
bank is found to act only as an intermediary, that is, the bank is not primarily interested in the
purchase of commodities or entering international markets. The client, too, has no real interest
or, in most cases, any knowledge of the commodities involved. The objective only happens to
be obtaining cash from the bank against undertaking a debt to be settled in instalments. Critics
see this situation as bordering on a ribawi transaction.
The resolution of the Islamic Fiqh Academy condemning organised tawarruq summarise the
negative aspects found therein as follows: the undertaking of the seller to act as the agent for
the sale of the commodity to another purchaser, or to arrange such a purchaser, irrespective
of the undertaking being in the form of a condition or based on custom and practice, makes
tawarruq similar to the prohibited ‘inah contract. The process involved in most instances
fails to fulfil the requirements of actual delivery and possession necessary for validity. Hence,
the procedure results in providing cash against a higher (obligation) to a person known as
mustawriq (that is, seeker of tawarruq from the bank) through purchase and sale transactions
that are superficial in most instances, the purpose of the bank being a higher return for the
amount of money provided. These two tawarruq differ in a number of ways. Fiqhi tawarruq
comprises the genuine purchase of a commodity at a credit price resulting in the ownership
of the asset by the purchaser and this is demonstrated by al-qabd (taking possession) that
has taken place properly. As such, the whole liability of the ownership rests totally with the
purchaser. The possibility of a subsequent sale to fulfil his needs for cash is also not assured.

Unit 5 | 38
Unit 5.5.5 APPLICATION OF TAWARRUQ BASED ON SOME

RESOLUTION OF THE SHARI’AH ADVISORY
COUNCIL OF BNM
Unit 5.5.5.1 DEPOSIT PRODUCT BASED ON TAWARRUQ
An Islamic financial institution proposed to offer a deposit product based on tawarruq or

commodity murabahah. The proposed mechanism of the commodity murabahah deposit is as
follows:
1. The customer (depositor) appoints the Islamic financial institution as an agent to

purchase a metal commodity from metal trader A on cash basis in a recognised metal
commodity market;
2. The Islamic financial institution will thereafter purchase the metal commodity from the
customer on a deferred sale at a cost price plus profit margin; and
3. The Islamic financial institution will sell back the metal commodity to metal trader B
on cash basis in the metal commodity market.
As a result of the transaction (2) above, the Islamic financial institution will assume liability
(the cost price of the commodity plus profit margin) to be paid to the customer on maturity.
The purchase price of the commodity from metal trader A and the sale price of commodity to
metal trader B are the same. In this regard, the SAC was referred to on the issue as to whether
the deposit product based on tawarruq is permissible.
Resolution
The SAC, in its 51st meeting dated 28 July 2005, has resolved that a deposit product based on
tawarruq is permissible.1
Unit 5.5.5.2 FINANCING PRODUCT BASED ON TAWARRUQ
An Islamic financial institution proposed to offer a financing product based on the concept of
tawarruq or commodity murabahah. The proposed mechanism of the commodity murabahah
financing is as follows:
SAC BNM p. 95.

1

Unit 5 | 39
1. The Islamic financial institution purchases a metal commodity from metal trader A on
cash basis in a recognised metal commodity market;
2. The Islamic financial institution sells the metal commodity to the customer on credit
basis at a cost price plus profit margin; and
3. 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.
The cash sale by the customer to metal trader B will enable the customer to obtain cash for
financing, while the deferred credit sale from the Islamic financial institution to the customer
will create a financial obligation that must be paid by the customer within an agreed term.
In this regard, the SAC was referred to on the issue as to whether the financing product based
on the concept of tawarruq is permissible.
Resolution
The SAC, in its 51st meeting dated 28 July 2005, has resolved that a financing product based on
the concept of tawarruq is permissible.
Unit 5.5.5.3 SUKUK IJARAH AND SHARI’AH COMPLIANT

SHARES AS THE UNDERLYING ASSET IN
TAWARRUQ
There was a proposal by an Islamic financial institution to use sukuk ijarah and Shari’ah
compliant shares as the underlying asset in tawarruq or commodity murabahah transaction
to manage liquidity in Islamic financial system. The feature of the proposed sukuk ijarah is
a sukuk ijarah which is backed by a tangible asset, financial asset and a combination of both
tangible asset and financial asset. ’
In this regard, the SAC was referred to on the issue as to whether the application of sukuk ijarah
and Shari’ah compliant shares as the underlying assets in a tawarruq transaction is permissible
in Shari’ah.
Resolution
The SAC, in its 58th meeting dated 27 April 2006, has resolved that the application of sukuk ijarah
and Shari’ah compliant shares as the underlying asset in tawarruq or commodity murabahah

Unit 5 | 40
transaction to manage liquidity in the Islamic financial system is permissible. The sukuk ijarah
shall be backed by tangible asset or a combination of tangible asset and financial asset.2
Basis of the Ruling
The aforesaid SAC’s resolution is based on the following considerations:
1. The proposed underlying assets consist of permissible and tradable assets in accordance
with the Shari’ah; and
2. The sale transaction based on tawarruq normally involves a deferred sale by one of the
contracting parties. In this case, the tawarruq transaction must involve sale of tangible
asset or securities that are backed by a tangible asset or a combination of tangible asset
and financial asset in order to avoid sale of debt with debt, which is forbidden in Shari’ah.
Unit 5.5.5.4 APPLICATION OF TAWARRUQ IN SUKUK

COMMODITY MURABAHAH
There was a proposal to issue sukuk commodity murabahah based on tawarruq as an alternative
instrument to existing money market products which are based on the concept of bay al-‘inah.
Generally, the method of issuance of this sukuk involves a commodity murabahah transaction
through a tawarruq contract to create indebtedness between the sukuk issuer and investors.
The debt will be settled by the sukuk issuer upon the maturity date. This sukuk will be tradable
in the secondary market for financial institutions that apply the concept of bay al-dayn. In this
regard, the SAC was referred to on the issue as to whether the proposal to issue sukuk based on
tawarruq complies with Shari’ah.
Resolution
The SAC, in its 67th meeting dated 3 May 2007, has resolved that there is no objection from
the Shari’ah perspective for the issuance of sukuk commodity murabahah based on tawarruq as
long as the sale transactions involve three or more contracting parties.3
SAC BNM p. 97.

2
SAC BNM p. 98.

3

Unit 5 | 41
Unit 5.5.5.5 PROPOSED OPERATIONAL MODEL OF THE

COMMODITY MURABAHAH HOUSE
Bank Negara Malaysia, Securities Commission, Bursa Malaysia and Islamic financial industry
players have collaborated to introduce a fully electronic web-based Shari’ah commodity trading
platform known as Commodity Murabahah House (CMH). As an international commodity
platform, CMH facilitates commodity based Islamic investment trading and financing under
the principles of tawarruq, murabahah and/or musawamah. As a start, crude palm oil (CPO)
with clear specification is traded in the CMH in Malaysian ringgit. CMH also offers trading
in various foreign currencies to provide a wider range of options, access and flexibility for
international financial institutions to participate in the Shari’ah commodity trading market.
In the proposed structure of the CMH, the seller is required to own the CPO prior to any sale
transaction. CMH allows the buyer to receive delivery of the commodity if the buying position
is above commodity sale and trading accounts are not squared off on the same day. Prior to the
delivery, the CPO buyer must first obtain a license from the Malaysian Palm Oil Board and will
be charged a delivery fee determined by the CMH as well as other costs related to delivery and
storage.
In this regard, the SAC was referred to on the issue as to whether the proposed implementation
of CMH is in line with Shari’ah.
Resolution
The SAC, in its 78th meeting dated 30 July 2008, has resolved that the proposed operational
structure of CMH is permissible on the condition that the traded CPO shall be identifiable
and precisely determinable (mu’ayyan bi al-zat) in terms of its location, quantity and quality
in order to meet the features of a real transaction. In addition, it is also recommended that the
transaction shall be executed randomly so that the CMH operation is better able to meet the
original features of tawarruq.4
Basis of the Ruling
The use of CPO as the underlying asset is viewed as fulfilling the requirements of the subject
matter of a sale transaction because it exists and is physically identifiable, is able to be received
before sale, and its quality is determinable based on the given specifications in terms of its
4
SAC BNM p. 99.

Unit 5 | 42
essence, standard and value. In addition, the traded CPO is deliverable to the buyer and is free
from any binding terms.
Unit 5.6 QARD HASAN CONTRACT AS A LIQUIDITY

MANAGEMENT INSTRUMENT
According to the SAC, liquidity management instrument is a mechanism used to ensure the
liquidity of financial institutions is at an optimum level. It is specifically used to absorb the
liquidity surplus in the market. Islamic financial institutions with liquidity surplus will be able
to channel the surplus to Bank Negara Malaysia via this instrument. Previously, most of the
Islamic liquidity management instruments were based on mudarabah and wadi’ah.
Thus, there was a proposal to introduce liquidity management instruments based on qard as
an additional instrument for managing liquidity in the Islamic financial system. The proposed
mechanism of liquidity management instruments based on qard is as follows:
1. Bank Negara Malaysia will issue a tender through the FAST system (Fully Automated
System for Issuing/Tendering), disclosing the amount of loan to be borrowed;
2. The tender is based on uncompetitive bidding whereby bidders will only bid for the
nominal amount that they are willing to loan to Bank Negara Malaysia;
3. The successful bidder will provide the loan based on tenure until maturity; and
4. Upon maturity, Bank Negara Malaysia will pay back the loan in total. Hibah (if any) may
be given at the discretion of Bank Negara Malaysia.
In this regard, the SAC was referred to on the permissibility of the proposed liquidity instrument
based on qard.
Resolution
The SAC, in its 55th meeting dated 29 December 2005, has resolved that liquidity management
instruments based on qard, which is a contract of interest free loan between Islamic financial
institutions and Bank Negara Malaysia to fulfil the need of short term loans are permissible.
Bank Negara Malaysia, as the borrower, may pay more than the borrowed sum in the form of
hibah at its discretion. Nevertheless, the hibah shall not be pre-conditioned.1
SAC BNM p. 50.

1

Unit 5 | 43
Basis of the Ruling
The permissibility of liquidity management instruments based on qard is attributed to the

permissibility of qard contract. Such products are important in meeting the country’s needs to
manage liquidity. Basically, any stipulated benefit, hibah or additional value in consideration of
a loan is prohibited. It is stated in the following hadith of Rasulullah (p.b.u.h.):
“From Ali r.a. who said, that Rasulullah (p.b.u.h.) said: ‘Every loan which brings
benefits (to the creditor) amounts to riba.’
However, if the benefit, hibah or additional value is given unconditionally, it is permissible.

This is based on the following hadith of Rasulullah (p.b.u.h.):
“From Jabir r.a who said: ‘I came to see Rasulullah (p.b.u.h.) when he was in the masjid
(Mis’ar said that Jabir came during dhuha time), Rasulullah (p.b.u.h.) asked me to
perform a two raka’at prayer, he paid the debt that he owed to me and added to it.’”
Settlement of debts with additional values or benefits is allowed as long as it is not stipulated
in the contract and has not become a common practice (urf). However, if it becomes a common
practice due to a given loan, such practice shall be discontinued since a common practice, or
urf, is equivalent to a stipulated condition.

Unit 5 | 44
Unit 5.7 WAFA’ CONTRACT
Bay wafa’ is also known in other terms, such as bay thanaya (Maliki school of law), bay ‘uhdah
(Syafi’i school of law), bay amanah (Hanbali school of law), bay to’ah or bay jaiz. The Hanafi
book named it bay muamalah. Section 118 of Majallah al-Ahkam al-‘Adliyyah defined it as a
sale with a condition stipulating that when the seller pays back the price of the goods sold, the
buyer returns the goods to the seller.
According to al-Zarqa’, it is ‘aqd tauthiqiy (security contract) in the form of a sale, based on the
fact that both parties to the contract have the right to reclaim the exchanged goods. This means
that when there is a wafa’ sale, the seller has the right to reclaim the goods sold by paying the
buyer the full price of the goods sold.
It is called wafa’ because of the obligation to fulfil the condition in the contract, i.e., returning
the goods sold when the seller decides to reclaim the goods by paying back the amount.
Unit 5.7.1 THE MAIN FEATURES OF WAFA’
The main features of bay wafa’ include:
1. The seller and buyer can terminate the contract at any time;
2. The asset traded according to wafa’ is not an asset obtained through musya’;
3. The buyer can utilise and benefit from the property bought through wafa’;
4. The buyer will be liable if there is any damage caused to the property by his own
carelessness and negligence; and
5. The buyer cannot transfer the right of ownership of the property to another person via
a sale.
However, there are some Hanafi scholars who consider the transfer of ownership to a third
party permissible on the condition that the asset can be reclaimed.
Based on the above explanation, it can be concluded that the financier acts as the buyer of the
asset from the individual who needs capital. These attributes also show the presence of rahn

Unit 5 | 45
(pledge) characteristics despite its execution as a form of sale. For that reason, Al-Zarqa’ in an
analysis of the features of bay wafa’ stated that it is a combination of rahn and bay (sale). Thus,
it is considered a contract in itself and not fully bound by bay or rahn.
The following paragraph illustrates the concept of bay wafa’:
A sells a property to B on the condition that if A pays back the cost of the asset, B will return
the asset to A. The price is fixed by both parties, and the buyer can use the asset and enjoy its
benefits as long as he does not transfer the ownership right to a third party.
Unit 5.7.2 ARGUMENTS PERTAINING TO BAY WAFA’
Past Islamic jurists were divided upon determining the ruling on bay wafa’. The Maliki and
Hanbali schools of law, and mutaqaddimun (the earlier generation) of the Hanafi and Syafi’i
school of law considered bay wafa’ as not permissible because trading is not the main purpose
of the bay wafa’ contract. They concluded that its main purpose is to legitimise riba, which is
forbidden.
The mutaakhhirun (the later generation) of Hanafi and Syafi’i scholars permitted bay wafa’
on the grounds that it is an effort to prevent the occurrence of riba. They permitted it due to
society’s demand and because it had become the social urf in many places. Some of the Islamic
jurists of the Hanafi school of law were of the opinion that both the seller and buyer can sell the
wafa’ goods to a third party on the condition that both parties (seller and buyer) had agreed to
the transaction of the other party.
In fact, some Islamic jurists such as Al-Ba’lawi from the Syafi’i school of law and Al-Sadr al-
Shahid Omar Adul Aziz and Al-Marghinani from the Hanafi school of law even permitted the
buyer to sell the wafa’ goods to a third party without referring to the wafa’ seller.

Unit 5 | 46
SUMMARY
• This unit discussed a few liquidity management contracts, namely ‘inah, tawarruq,
qard and wafa’.
• The ‘inah contract is utilised as one of the modes of financing in Islamic banking
and finance in some countries. In Malaysia, ‘inah still forms a major part of banking
practices. Its easy imitation to conventional practices has made this contract to be
the most preferable one. While some view it to be positively valid, some have voiced
their dissatisfaction towards its practice. Both sides of the argument have been fairly
presented in this unit.
• The unit also discussed tawarruq and its application in modern Islamic banking and
finance. The practice of organised tawarruq is different from fiqhi tawarruq. Therefore,
the jurists have different opinions on its validity.
• The other contract is qard hasan which is one of the very important contracts and has
great potential in addressing some issues related to liquidity management.
• The last contract discussed in this unit is the wafa’ contract which is considered as one
of the liquidity management instruments that can be implemented in very limited
scope in banking. However, wafa’ is disputed and Shari’ah opinions were presented
and discussed. .

Unit 5 | 47
QUESTIONS AND PROBLEMS
Question 1.
Describe some arguments put forward by the majority in denouncing ‘inah.
Question 2.
Elucidate the juristic positions on the relevance of intention to ‘inah.
Question 3.
Describe the major requirements for the validity of ‘inah as upheld by Shafi’i jurists.
Question 4.
Discuss the arguments of tawarruq put forward by the majority of scholars.
Question 5.
Discuss the different arguments of the bay wafa’ contract.
Question 6.
Elaborate on the important application of qard hasan as an instrument for liquidity management
in Islamic finance.

Unit 5 | 48
• Shariah Advisory Council, Bank Negara Malaysia, Second

Edition.
• ‘Abdullah ibn Ibrahim al-Musa, “al-Tamwīl bayn al-‘inah

wa al-Tawarruq, al-Mu’tamar al’ilmi al-Sanawi al-Rabi’ ‘Asr,
Kulliyyah al-Syari’ah wa al-Qanun, Jami’at al-Imarat al-
‘Arabiyyah al-Muttahidah
• Ahmad Muhammad Khalil al-Islambuli, al-Murabahah wa

al-‘Inah wa al-Tawaruq, Bayna Usul al-Bank wa Khusumihi,
Majallat Jami’at al-Malik ‘Abdul Aziz li al-Iqtisad al-islami,
Vol. 18, No. 1, 2005.
• al-Baji, Sulayman ibn Khalaf, al-Muntaqa Sharh al-Muwatta’,

Beirut, Dar al-Kitab al-cArabi, 1332 A. H.
• al-Bahuti, Mansur ibn Yunus ibn Idris, Kashshaf al-Qinac

can Matn al-Iqnac, ed. Hilal Musailihi Mustafa Hilal, Alam
al-Kutub, Beirut, 1983 C. E. – 1403 A. H.
• al-Dasuqi, Ibn Arafah, Hashiyah al-Dasuqi cala al-Sharh al-

Kabir, Dar Ihya’ al-Kutub al-Arabiyyah, Cairo, n. d.
• al-Hattab, Muhammad ibn Muhammad ibn Abd al-

Rahman, Mawahib al-Jalil li Sharh Mukhtasar Khalil,
Maktabat al-Najjah, Tripoli, Libya, n.d.
• Ibn Abidin, Muhammad Amin ibn Umar, Hashiyah Radd

al-Mukhtar cala al-Durr al-Mukhtar, Dar al-Fikr, Beirut,
1992 C. E.- 1412 A. H.
• Ibn Humam, Muhammad ibn Abd al-Wahid, Sharh Fath al-

Qadir, Dar al-Fikr, Beirut, 2nd ed., n.d.
• Ibn Rushd al-Hafid, Abu al-Walid, Muhammad ibn Ahmad

ibn Muhammad ibn Ahmad, Bidayat al-Mujtahid wa
Nihayat al-Muqtasid, Dar al-Jil, Beirut, 1989 C. E. – 1409
A.H.

Unit 5 | 49
• Ibn Taymiyyah, Ahmad ibn Muhammad, Majmucat al-

Fatawa, compiled by Abd al-Rahman ibn Muhammad ibn
Qasim al-Asimi, Dar al Taqwa, Jeddah, n.d
• Ibn Qudamah, Abu Muhammad Abdullah ibn Ahnad ibn

Muhammad, al-Mughni, Dar al-Kutub al-‘Ilmiyyah, Beirut,
n. d.
• al-Kasani, Abu Bakr ibn Mas’ud, Bada’i al-Sana’i fi Tartib al-

Shara’i, Dar al-Kitab al-‘’Arabi, 2nd Ed., 1402 A. H.
• Malik bin Anas, al-Mudawwanah al-Kubra. Narrated by

Sahnun ibn Sa’id al-Tanukhi from ’Abd al-Rahman ibn
Qasim, Dar al-Kutub al-‘Ilmiyyah, Beirut, 194 C. E. – 1415
A. H.
• al-Khafif, ‘Ali, Ahkam al-Mu’amalat al-Shar’iyyah, Dar al-

Fikr al-‘Arabi, Cairo, 1996
• al-Marghinani, Abu al-Hasan ibn ‘Ali ibn Abu Bakr, al-

Hidayah Sharh Bidayat al-Mubtadi’, Maktabah wa Matba’at
Muhammad ‘Ali Sabih wa Awladuhu, n.d.
• Muhammad al-Bashir, Dalil al-Zari’ah al-Usuli fi al-Hiyal wa

al-Makharij, al-Tajdid, al-Sanat al-sadisah, No. 12, August
2002.
• Muhammad bin Ibrahim, al-Hiyal al-Fiqhiyyah fi al-

Mu’amalat al-Maliyyah, al-Dar al-‘Arabiyyah li al-Kutub,
1983.
• al-Nawawi, Abu Zakariyya Muhy al-Din ibn Yahya ibn Sharf,

al-Majmu’ Sharh al-Muhadhdhab, Maktabat al-Irshad,
Jeddah, n.d.
• al-Ramli, Ahmad ibn Hamzah ibn Shihab al-Din, Nihayat

al-Muhtaj ila Sharh al-Minhaj, Dar al-Fikr, Beirut, 1984.
• Resolutions of the Securities Commission Syariah Advisory

Council, Securities Commission, 2nd edition, 2003.

Unit 5 | 50
• Saiful Azhar Rosly & Mahmood M. Sanusi, The Application

of Bay’ al-‘Inah ad bay’ al-Dayn in Malaysian Islamic Bonds:
An Islamic Analysis, International Journal of Islamic
Financial Services, Vol. 1, No. 2.
• Saiful Azhar Rosly & Mahmood M. Sanusi, , Some Issues

of Bay’ al-‘Inah in Malaysian Islamic Financial Markets,
Unpublished Research Funded by IRPA Grant: #040208705
• Satoe Horii, Reconsideration of Legal Devices (Hiyal)

in Islamic Jurisprudence: The Hanafis and Their “Exits”
(Makharij), Islamic Law and Society, Vol. 9, No. 3, 2002.
• al-Shafi’i, Muhammad bin Idris, al-Umm, Dar al-Ma’rifah,

Beirut, 1973 C. E. – 1375 A. H.
• al-Shawkani, Muhammad ibn ‘Alii, Nayl al-Awtar, Dar al-Jil,

Beirut, 1393 A.H.- 1973 C. E.
• al-Siddiq Muhammad Amin al-Dharir, Al-Tawarruq al-

Masrafi; Al-Ra’y al-Fiqhi, Hawliyyat al-Barakah, Vol. 6,
Ramadhan 1425h, October 2004 AC
• Wahbah al-Zuhayli, Financial Transactions in Islamic

Jurisprudence, Translated by Mahmoud A. El-Gamal.
• Yusuf Talal DeLorenzo (editor). A Compendium of Legal

Opinions on the Operation of Islamic Banks, Vol. II,
Institute of Islamic Banking and Insurance, London, UK,
2000.


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Shari’ah Issues in Liquidity Management Contracts

5.2- ‘Inah contract

5.3- Legitimacy of ‘inah according to Muslim jurists

5.4- The relevance of intention to ‘inah

5.5- Tawarruq contract

5.6- Qard hasan contract as a liquidity management instrument

5.7- Wafa’ contract

Unit At the end of this unit, you should be able to:

SH5023 Shariah Issues in Islamic Finance

Liquidity management is a crucial aspect in Islamic

SH5023 Shariah Issues in Islamic Finance

Unit 5.1 INTRODUCTION

Unit 5.2 ‘INAH CONTRACT

Unit 5.2.1 DEFINITION AND NATURE OF ‘INAH

SH5023 Shariah Issues in Islamic Finance

Another version of the hadith says:

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

Unit 5.3 LEGITIMACY OF ‘INAH ACCORDING TO MUSLIM

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

Unit 5.3.1 DENOUNCERS OF ‘INAH

SH5023 Shariah Issues in Islamic Finance

Unit 5.3.2 PROPONENTS OF ‘INAH

Unit 5.3.3 ARGUMENTS AGAINST THE VALIDITY OF ‘INAH

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

According to another version of the same hadith:

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

Unit 5.3.4 ARGUMENTS FOR VALIDITY

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

Unit 5.3.5 ANALYSIS OF THE PERMISSIBILITY OF ‘INAH

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

Unit 5.4 THE RELEVANCE OF INTENTION TO ‘INAH

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

Unit 5.4.1 INTERCONDITIONALLY IN ‘INAH

Shari’ah Advisory Council’s Resolution on ‘Inah

SH5023 Shariah Issues in Islamic Finance

Basis of the Ruling

SAC BNM p. 114.

SH5023 Shariah Issues in Islamic Finance

• What amounts to an ‘aqad or contract? Is the Master Facility Agreement (MFA),

There are two (2) approaches to conclude an ‘inah contract:

SH5023 Shariah Issues in Islamic Finance

View of scholars on the above issue

SH5023 Shariah Issues in Islamic Finance

Tafahum janibi is a preliminary agreement or a period which allows the contracting

‫املعروف عرفا ًكاملشروط شرط ًا‬

SH5023 Shariah Issues in Islamic Finance

Summary of the resolution of the SAC of BNM

1. Outline the Shari’ah compliance requirements on bay al-‘inah; and

SH5023 Shariah Issues in Islamic Finance

SH5023 Shariah Issues in Islamic Finance

same agreement by the purchaser as an endorsement of acceptance to purchase

SH5023 Shariah Issues in Islamic Finance

Unit 5.5 TAWARRUQ CONTRACT

The structure of a tawarruq is a contract is becoming increasingly popular as a means of financing

Unit 5.1 INTRODUCTION