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• Need of cash – home down payment, further studies,
renovate home, settle credit card bills etc.
• To avoid riba in loan with fixed charge, Islamic banks offers
Islamic personal financing by using bay al-inah, tawarruq and
ar-rahn personal financing.
Qardu Hasan
• Qard (loan), hassan (good/benevolent).
• Not for commercial use, but for personal use.
• Express spirit of cooperation (ta’awun) and brotherhood
(ukhwah) between debtors and creditors.
• Creditor expect nothing in return, only full repayment of
• Debtor obliged to return the principle loan
• Debtor can place collateral (rahn) to support the loan.
• I went to the prophet s.a.w. while he was in the mosque.
After the Prophet s.a.w. told me to pray two raka’at, he
repaid me the debt he owned me and gave me an extra

• Prophet s.a.w. says, “the best amongs you is he who

repays his debts in the most handsome manner (al-

* Extra payment is not binding but released according to the

paying capacity and willingness.
Extra payment/hibah
• Reason:
1) Thankful for the loan given
2) Debtor is concern that inflation may cut the real
value of principle loan
3) Debtor understands that creditor suffers loss of
opportunity and earn alternative income if monies
are invested elsewhere
4) Debtor is an individual with iman and taqwa.
Bay Al-’Inah
• Bay al-’inah is a sale with a repurchase or by-back
agreement between two parties.
• Applied to provide cash advances to customers.
• E.g.: You need RM10,000 to pay your overdue tuition
fees. Then, you approach Islamic Bank A…
a) Al-Inah
b) Tawaruq
Bay Al-’Inah
1. Bank sell asset
Deferred payment at cost price + mark up

Bank Customer

Cash basis

2. Customer sell back the asset

Tawarruq Munazzam
(Organized Tawarruq)
1) You are looking for RM50,000 cash to pay out his debt. He
approaches Islamic Bank A.
2) Islamic bank A sell asset to you at cost price and profit
margin (RM50,000 + (50,000 x 10% x 3)) = RM65,000 on
deferred basis. You pay the bank RM65,000/36 =
RM1,805.55/month for 36 months  Bank – You
3) You sell the asset to company ABC (usually that company
has a business relation with Bank A). Company ABC pays
RM50,000 to you.  You – Company ABC (third party)
• Fiqh Academy of Mecca – unlawful
• Tawarruq is only permissible when third party is independent
from the 1st party (bank)  to avoid any form of guarantee on
the price of asset (as price supposed to be set by market
• Tawarruq munazzam shows there is some form of price rigging
to secure the RM50,000 sale price.
• Tawarruq personnel financing in Malaysia use crude palm oil (CPO)
commodity asset.
1. You appoint an Islamic bank (IB) as agent to buy and sell CPO.
2. IB buy CPO from commodity market Bursa Suq Al-Sila for
RM50,000 and sell to you on murabahah at 10% profit rate per
annum for 3 years. (RM50,000 + [50,000 x 10% x 3]) = RM65,000.
3. You have to pay RM1,805.55/month (RM65,000/36) to the bank
for 36 months .
4. You request the IB to sell CPO on your behalf.
5. Bank sells at RM50,000 on cash basis and pay to You

• This transaction performed within a day

• Bursa Suq Al-Sila is free commodity market for CPO where we can
find many traders.
Criticism Towards Tawarruq
1. Ilah of riba’
2. Sale of a forced person
3. Objective of buying and selling does not exist (no real sale,
real transfer of risk to buyer of goods)
4. Mafasid overwhelm masalih
The borrower simply need to place a pledge or security for the
amount of debt needed (e.g.: gold ring valued at RM2,000).
The pawn broker will loan the debtor RM1,000 with monthly
interest of RM2 for every RM100 loan
The payment period is 6 months. At the expiry date,debtor is
expected to pay RM1000 + RM120 (RM20 x 6 months).

 If debtor fails to pay this sum – new agreement for a new 6

months extension at the same interest rate (condition: he pays
the first 6 months interest).
 Means, he is paying 24% interest rate per annum (too high).
 Debtor must pay a lump-sum of RM1000 + interest within
specified period.  failure to pay means losing the collateral.
 Pawn broker benefit from interest and the unability of debtor to
Islamic (Ar-Rahn Scheme)
• Customer places gold with the bank for self-keeping (wadiah
yad dhamanah)
• Customer will receive interest free margin of advance (qardul
hasan) as gold held as collateral (ar-rahn) for tenor up to 6
months, with 2 months extensions.
• Maximum facility extended each day is RM5,000 up to
• On the maturity, the customer should redeem th facility
including ujrah (fees), or else the gold will be retained by the
bank – it is a hedge against inflation.
• Offered by Bank Rakyat, Bank Islam, Agrobank, EON Bank and
non-bank firms in Kelantan & Terengganu.
• Without charging interest, how would a company running an
Islamic pawn business make money?
• Profit from storage fees
• Formula: a pledged valued at RM1,000, pledger is required
to pay storage fee of the total value of the pledge.
• E.g.: Bank Rakyat  if the pledge value is less than
RM1,000, it costs RM4 per month ([RM1,000/100] x 40
• RM500 payable loan in 6 months will incur a storage cost of
RM24 (RM4 x 6months). Rahin will pay murtahin RM524.
• Failure to pay  after a prolonged reminder, right to put
collateral on auction. Amount earned from auction, use by
company to cover unpayable loan and storage fees. Any
surplus will be returned to the rahin.
• Rahin cannot be located  proceeds will be forwaded to
baitul mal from which rahin entitle t make future clims
• The pawnee (murtahin) not entitled to use the collateral
(rahn) for his right. If company uses pledge for its own benefit
without informing the debtor, it takes full liability for the
losses incurred in case of loss.
Share Purchase Financing
• Under this contract, IFI agrees to finance the customer’s share
trading activities in Shari’ah counters listed in Bursa Malaysia.
• Murabahah share purchase involves a fixed return.
• Shares are acquired by the bank and resold to the customer for a
deferred credit price.
• The selling price rate capped at murabahah profit rate, customer can
avoid fluctuating rates over period of financing.
• The effective rate is at par with the conventional rates.
• Financing tenor between 1 to 5 years, with minimum of RM50,000.
• Customer can also conduct Non-Margin Financing using their own
fund to invest from their share trading I account and will be debited
on the purchase settlement date based on availability of the funds.
• IFIs offer Share investment Centres (SIC) facilities, which adopt a
through processing system or via internet banking portals.