Issues in Bay Al Inah and Bay Al Dayn

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

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ARZIM NAIM ISSUES IN BAY’ AL-‘INAH AND BAY’
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Chartered Certified The application of bay’ al-‘inah (sale and
Accountants (ACCA) and repurchase back) and bay’ al-dayn(sale of debts) is
a Practising Member of making the Islamic financial industry lost its identity.
the Association of
The issues are serious to the Islamic financial market
Chartered Islamic Finance
Professionals (ACIFP). movement, as it is not about minor details of
Founder of ARZIM religious practices (furuq) but sadly dealing with the
ASSOCIATES, Chartered fundamental (usul) of religion. This time it is riba or
usury. Its application in Islamic financial market is TO MY BLOG READERS,
Accountants, Chartered WELCOME TO MY B LOG
Islamic Finance partly caused by the lack of knowledge in riba that is This site is solely dedicated to
Professionals. Currently, a both definite and decisive. For this reason, it is publishing my writing mostly on
PhD in Islamic Finance critical to put things straight and get to the basics the topics of Islamic finance, as
candidate at the
again. This project paper endeavours to explore the and when I am able to pen my
International Centre for
Education in Islamic critical issues in regard to both instruments and thoughts.
Finance (INCEIF). An other concepts available in Islamic commercial law
Some of the articles were written
auditing /accounting that can be employed as alternatives.
as partial fulfillment for
lecturer for the local completing the Chartered
universities. Islamic Finance Professional
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ISSUES IN BAY’ AL-‘INAH AND BAY’ AL-DAYN AND PROPOSAL FOR OTHER CONCEPTS AVAILABLE IN ISLAMIC COMMERCIAL LAW TO BE EMPLOYED...
motive, Islamic banks today have rationalised the Comments must be accompanied
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application of murabahah[1] and bay’ bithaman
Anonymous postings and those
ajil[2] (BBA) leading to a wholesale recognition of containing profanities and
Accounting . Islamic Finance . obscenities will be rejected.
Shariah Audit . Halal positive time preference. However, the worst
Consultancy
scenario would be the application of bay’ al-‘inah[3] DISCLAIMER
Apart from my writings
ISLAMIC FINANCE TOPICS and bay’ al-dayn[4] likes in Malaysia has further where credits have been
Accounting and Auditing given to the ideas that i
driven Islamic banking and finance towards losing borrowed / discussed on
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the "REFERENCE", the
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inside this blog represent
Islamic Banking and and preferences and also the Islamic bank’s attitudes the compilation of my
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for being risk-adverse, the principle of ‘al-ghurm bil- finance from various
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resources and are
(Usul al-Fiqh) (3) ghunm (no pain, no gain) has been isolated from intended solely for
Islamic Law of Contracts academic and research,
(1)
financing. This point holds true for bay’ al-‘inah and and not for commercial
purposes. Where
Islamic Rules on bay’ al-dayn or combination of both products as they applicable, credits and
Transactions (Fiqh al- copyright should be given
Muamalat) (6) are intended to satisfy the customer’s desire for fixed or attributed to the
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income and risk-free investments. As lending has publishers of the said
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Wealth Planning and been the traditional approach in banking, Muslims Readers are invited to
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thought that only bai al-inah, murabahah and BBA expand the knowledge
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The same applies to the banking firms; for example,
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Bay’ al-‘inah is generally defined as sale-based on
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Islamic commercial law. However, bay’ al-‘inah is a
legal sale in the Shafi’i Mazhab, in which it says the
intention or niyyah is not a significant element in
determining the validity of a contract. According to
Shafi’i Mazhab, such sales are to be allowed because
in the words of Imam Shafi’i, contracts are valid
(sahih) by the external evidence that they were
properly concluded; the unlawful intention (niyyah or
qasd) of the parties is immaterial, it does not
invalidate their act, unless expressed in that Act.
Imam Malik and other medinite jurists hold these
transactions as invalid or void. They consider the
second transaction along with the first, and regard
the grounds viable enough to suspect that the
purpose is to exchange an amount of money with a
higher amount that is deferred, which forms a
prohibited riba. The same opinion is shared with
Hanbali and Hanafi jurists.
Generally, those who oppose bay’ al-‘inah have does
so primarily on the assumption that there exists an
agreement between the parties to carry out the two
sales in that order, so that the process results in one
of the parties invariably ending up obtaining
immediate cash against a future obligation settling a
higher amount. It seems that both parties are
pretentious and have no commitment to the sale
contract. The fact that both parties have no intention
of using the asset as any consumer does betrays one
principle of contract in Islam, namely the objective
of contract (maudu ‘ul aqdi). In the case of banking
firms; the sale and resale contracts initiated by either
the bank or the customer saw no event by which
either party has assumed risk-taking and value-
addition in rationalising the profit taken. In both
transactions, each party has made a prior guarantee
that in every sale there will exist an automatic resale.
As such, neither is exposed to market risks and
liability arising from, say defective goods sold, if
any. Bay’ al-‘inah is just a legal device (hilah) that
using Islamic commercial law (i.e. through trade and
commerce) to obtain cash without implicating riba;
to make forbidden thing permissible. The object of
sale comes into play by virtue of a trick to get away
with interest payments and receipts. Impliedly, bay’
al-‘inah implicates back door for interests.
2.2 Bay’ al-dayn
Dayn or debt is basically a liability of a person to
pay certain amount of money or in kind and the
obligation will reside until it is completely
discharged. Dayn is more general than qard (loan)
whereby, in qard contract, creditor lends money or
item to the debtor on a condition that the debtor will
return the value of the money to the lender at a
specific time. Thus, this is the source for dayn to
arise. Therefore, the qard is only a type of dayn.
Bay’ al-dayn (debt trading) in Islamic commercial
law point of view is referring to the principle of
selling the dayn which results from mu’awadhat
maliyyah contracts (exchange contracts) such as
murabahah, BBA, ijarah and others. In Islamic
commercial law, dayn can be traded only at par
under the purview of hiwalah (transfer of debt).
There is no room to profit from a debt trading.
According to most of Hanafis, Hanbalis and Shafi’s
jurists, bay’ al-dayn is not allowed to a non-debtor
or a third party at all. Such opinions are based on the
forbidden sale of bai’ al-kali bil kali[10] (a debt that
is paid by debt) and a sale of gharar[11], which
implicates the sale of a thing which the seller does
not possess; debt is intangible asset in nature.
Zahiris maintained that the sale of debt is disallowed
to third party or even to the debtor himself. Hanafi
Mazhab looked at bai’ al-dayn from the aspects of
potential risks to the buyer, debtor and the nature of
the debt itself. Thus, Hanafis also disallowed bay’ al-
dayn to the third party regardless of the types of
debts because the risks cannot be overcome in the
context of debt selling. This is because the debt is in
the form of mal hukmi (intangible assets) and the
debt buyer takes on a great risk because he cannot
own the item bought and the seller cannot deliver the
item sold. Contrary to that, Shafi’is maintain that the
sale of a debt is allowed if it is confirmed debt (dayn
mustaqir) and was sold in exchange for ‘ayn (goods)
that must be delivered immediately. Furthermore, the
debt sold must be traded at par value. Ibn al-Qayyim,
a Hanbali jurists confirmed that bai’ al-dayn is
completely in agreement with Shariah and there was
no general nas or ijmak (consensus on legal opinion)
that prohibited it. What was stated was the
prohibition of bay’ al-kali bil kali. Thus, bay’ al-
dayn for deferred payment is not allowed. The
Malikis also shared the same view with Ibn al-
Qayyim except that Malikis imposed eight conditions
to be fulfilled in order to protect the rights of the
debt buyer, to avoid debt selling before qabadh and
to avoid riba. The study shows that the ikhtilaf
(differences of opinion) among past Islamic jurists
centred on the ability to deliver the items sold. As for
Hanafi jurists, the prohibition for the sale of dayn to
third party for the fear that the buyer will have to
bear great risks holds the truth in it. This is especially
true if there is an absence of supervision and control.
The fifth condition set by Maliki Mazhab for bay’ al-
dayn relates to the exchange of ribawi items: the
debts can only be sold at par value.
In the Malaysian context, the trading of Islamic debt
securities instruments (or Islamic bonds) is regulated
by the Central Bank of Malaysia and Securities
Commission to safeguard the parties involved.
Therefore, the conditions set by the Maliki Mazhab
and the fears of risks by Hanafi Mazhab are
overcome by the regulation and surveillance set by
these regulators. In the case of Islamic bonds as
practiced in Malaysia, a bond that matures at par
value can be sold at a discount before maturity. For
example, the creditor (i.e. investor) is forced to sell at
a discount the Islamic bond for liquidity purposes.
But in the capital market, practically no non-debtor
will buy debt at par value, unless he can make some
capital gain from it. A bond worth RM1,000 (par
value) may be sold for RM920 to the third party.
Likewise, the third party can sell the bond at a profit
before maturity. If he anticipates that the interest rate
is falling (this in turn will increase the bond’s price),
he can sell it at the higher price than RM920. If he
anticipates the interest rate will rise (this in turn will
decrease the bond’s price), he may sell it
immediately or hold the bond till maturity and
redeem it at par. In this way, he still making profit of
RM80 (RM1,000 - RM920 = RM80).
What practically happened is that Malaysian jurists
hold the view that the sale of securitised debts is
similar to the sale of properties: the process of
securitisation of the debts will glue the bonds or
papers to some underlying assets and thus can
automatically qualify itself as property (al-mal).
Hence, the characteristics of debt securities are now
different from currency or money (ribawi item).
Since a property can be sold at any price, thus, the
Islamic bond as a property can be disposed at any
price agreed upon by the contracting parties. In a
contract of sale, the subject matter or object of sale
must generate usufruct (manfa’ah) to the buyer. For
example, people buy food for consumption or buy
houses to protect them from the heat or cold. But the
bond or dayn in this sense is not the commodity or
property, but only a legal right to a loan (i.e. right to
future cash flow arising from loan repayments)
represented by a piece of document in the form of
papers or certificates. The underlying of it is more of
a future monetary claim. Thus, the bond or dayn is
indeed money in nature, not property. Therefore the
sale of dayn must only be made at par value. Even if
the underlying debt was not the result of a
moneylending transaction (qard), the question of
riba arises if it was sold not at par value. Islam does
not recognise money as a subject-matter of trade.
Money has no intrinsic utility; it is only a medium of
exchange; each unit of money is 100% equal to
another unit of the same denomination, therefore,
there is no room for making profit through the
exchange of these units inter se. When the bonds are
sold at a discount or premium, the sale of dayn is
similar to the unequal exchange of money for money;
it implicates riba al-fadl[12]. Hence, any profit
created from the sale of dayn is unlawful.
3.0 Other concepts available in muamalat to be
employed as alternatives
3.1 Musyarakah mutanakisah or
diminishing musyarakah
Musyarakah is applicable in different modes of financing
for Islamic banks. Musyarakah can be used as for project
financing, to finance import and export, as working capital
of a running business or to purchase assets (e.g. motor
vehicle or house). In fiqh[13], the concept of musyarakah
is used in much wider sense. However, in the context of
Islamic banking operations, we are concerned with one type
of musyarakah, that which is known in fiqh as ‘inan
(unequal-shares) partnership i.e. sharikat ‘inan fi al-
mal [14] since it is this form which is seen to be the most
appropriate for Islamic banking environment. Musyarakah
financing can be utilised for purely commercial purposes
which are usually of a short term nature, or for
participation in the equity of medium to long term projects.
The type of musyarakah available are; (a) commercial
musyarakah, (b) decreasing participation or known as
musyarakah mutanaqisah, and (c) permanent
participation. Application of musyarakah will let more
involvement of Islamic banks in the sense of a real business
venture.
Musyarakah mutanaqisah or diminishing musyarakah is a
new instrument for musyarakah products and was
introduced in Egypt. Another term for musyarakah
mutanaqisah is musyarakah muntahiyah bittamlik. It is a
form of partnership contract whereby the Islamic bank
agrees to transfer gradually (by way of selling its shares in
one payment or in instalments based on terms agreed by
both parties) to the other partner its (the Islamic bank’s)
share in musyarakah, so that the Islamic bank’s share
declines and other partner’s share increases until the latter
becomes sole proprietor of the venture. Therefore, the bank
and its clients can participate either in a joint ownership of
a property or an equipment, or in a joint commercial
enterprise. The share of the bank is further divided into
number of units and it is understood that the client will
purchase the units of the share of the bank one by one
periodically, thus increasing his own share until all the
units of the bank are purchased by him so as to make him
the sole owner of the property or commercial enterprise.
The majority of the current Islamic jurists are unanimous
in accepting it as one of the halal (permissible)
instruments. This is because it has features that do not
contradict the nas and general principles of the Shariah.
These features are as follows:
‘inan company (form of partnership, in which
each partner contributes both capital and work);
promise from the financial institution to sell its
share of the company to its partner; and
the institution sells all of its partner fully or
partially.
Diminishing musyarakah has taken different forms in
different transactions. For example, say ‘A’ wants to
participate into one business venture, say restaurant, but he
is short of fund. He approaches one of the Islamic banks,
say ‘B’ and ask if the bank agrees to participate in the
business venture. After analyzing the business plan and
track record of ‘A’, ‘B’ agrees to participate because ‘B’
believed the business is viable. Total working capital of the
business is RM100,000 : 80% will be financed by ‘B’ whilst
‘A’ has to come out with another 20%. At the same time, the
share of ‘B’ is further divided into eight units, each unit
representing 10% ownership of the restaurant. The
agreement states that every 1 month, ‘A’ will purchase one
unit of the share of ‘B’. When the restaurant is operated, it
generated net profit of RM5,000 on a daily basis. Since ‘B’
has 80% share in the restaurant, it is agreed that 80% of
the net profit earned will be given to ‘B’ and the remaining
20% will be retained by ‘A’ who has 20% share in the
restaurant. This means that RM4,000 is earned by ‘B’ and
RM1,000 by ‘A’ on a daily basis. After 1 month, ‘A’
purchases one unit from the share of ‘B’. Consequently, the
share of ‘B’ is reduced to 70% and the share of ‘A’ is
increased to 30%. Therefore, from the date of purchased,
‘A’ will be entitled to RM1,500 being 30% from the
RM5,000 daily net profit earned whilst ‘B’ will be entitled
RM3,500 being 70% from the RM5,000 daily net profit
earned. This process will go on until after the expiry of
eight months, whereby the whole restaurant will be owned
by ‘A’ and ‘B’ will take back its original investment on top of
profit distributed as aforesaid.
Islamic financial institutions (IFIs) in Europe have been
using diminishing musyarakah as the mode for house
financing. For example, the client wants to purchase a
house but need additional funds. Thus, he approaches one
of the financiers who agree to participate in joint
arrangement to buy the house with him. The condition is
the financier will finance 80% from the price whilst 20%
will be borne by the client. At the same time, the share of
the financier is further divided in eight equal units, each
unit representing 10% ownership of the house. The
agreement states that every 3 months, the client must
purchase one unit of the share by paying 1/10th from the
price of the house. After purchasing the property jointly,
the client uses the house for his residential requirement and
pays to the joint owner for using their ownership in the
property. After 1 month, the client purchases one unit from
the share of financier. Consequently, the share of financier
is reduced to 70% and the share of client is increased to
30%. Hence, the rent payable to the financier is also
reduced to that extent. For the next 3 months, the client
will purchase another unit of the share; this will reduce the
financier share to 60% whilst increasing his share in the
property to 40%. Consequently, the portion of rent paid to
the financier is also reduced by that portion. This process
goes on in the same fashion until after the end of two years
(i.e. 24 months), the client purchases the whole share of the
financier reducing the share of financier to ‘zero’ and
increasing his own share to 100%. The financier will get
back his investment along with rental income distributed to
him as aforesaid.
Application of diminishing musyarakah can also be used in
the capital market. For example, ABC Holdings buy a
property worth RM125 million and sells it to XYZ Holdings
for RM150 million based on the principle of BBA within 120
months. As ABC Holdings requires liquidity, it can get the
project investors involved by issuing sukuk [15] based on
musyarakah mutanaqisah. For that purpose, ABC
Holdings puts in its share (the smaller part, say 10%) in
musyarakah mutanaqisah for the purchase of the property
(which costs RM125 million). The investors hold the
majority part (90%). ABC Holdings will then buy back all
the shares from the investors every month according to the
amount and duration agreed upon i.e.120 months. This will
end at the point when ABC Holdings owns all the shares
back.
3.2 Mudarabah contract
Mudarabah is a contract between two parties whereby one
party called rab al-mal (investors) entrusts money to
second party, called mudarib for the purpose of conducting
the trade. The mudarib contributes his labour and time and
manages the venture according to the terms of the contract.
One of the essential characteristics of this contract is that
the profit, if any, will be shared between the investor and
the mudarib on a pre-agreed proportional basis. The loss, if
any, should be borne by the investor alone. Another
essential characteristic is that the capital provider or
investor is not allowed to interfere in the management of
the business. He may have the right to oversee, monitor and
supervise the way the business is run, its progress, its
prospects and others, but the day-to-day control of the
business is the sole right of the mudarib. It is worth
noticing that the arrangement in mudarabah contract fits
well with the structure of venture capital.
Mudarabah contract can be applied in various ways in
conducting banking, trade and finance. The arrangement is
normally be used in IFIs to set-up the investment accounts.
The funds under mudarabah contract for investment
accounts holders (IAHs) include both unrestricted and
restricted IAH funds. For unrestricted IAHs, the funds will
be invested at IFIs discretion, normally in the same asset
pool as that in which shareholders’ funds of IFIs and those
from current accounts are placed. On the contrary, the
funds of the restricted IAHs are invested in asset pools that
are separately designated and distinct from shareholders’
funds.
IFIs can also participate in venture capital with
entrepreneurs by using mudarabah contract for project
financing. IFIs provide financing to the projects and the
entrepreneurs as the mudarib act as the mangers of the
project. The IFIs do not interfere in the day-to-day
functioning of the project. The profit is to be shared
between the parties according to an agreed ratio
determined ex-ante, but the losses will be completely borne
by the IFIs.
Mudarabah can also be used to finance import and export.
For example, mudarabah structure can be used in the
issuance of Letter of Credit (LC) which is normally used in
the import and export transactions by the bank. For
example, the client is about to import/ purchase stocks
from oversea suppliers. He can informs the bank of his LC
requirements and negotiates terms and conditions of the
mudarabah financing for this LC. The client will then
places a deposit with the bank under wadiah [16]
principles and the full amount of the cost of the goods to be
imported/ purchased as per mudarabah agreement. As
such, he will appoint the bank as the mudarib. The bank,
acting as the mudarib, establishes the LC and pays the
proceeds to the negotiating bank utilizing the client’s
deposit. After disposing the goods, the bank will share with
the client the profit from the venture according to the terms
and agreement of the venture.
4.0 Conclusion
One of the most important characteristics of Islamic
financing is that it is an asset-backed financing. The
conventional / capitalist concept of financing is that the
banks and financial institutions deal in money and
monetary papers only. Islam, on the other hand, does not
recognise money as a subject-matter of trade. Money has no
intrinsic utility; it is only a medium of exchange; each unit
of money is 100% equal to another unit of the same
denomination, therefore, there is no room for making profit
through the exchange of these units inter se. Because of
lack of understanding in money, the current issue on sale of
dayn has arisen. For these reasons, it is critical for us to get
to the basics again. We are not only need to know what
leads to riba, we also need to know are the basic
components of Islamic legitimacy in Islamic commercial
contracts, so that there’ll be no more hilah is used to
legitimize what is forbidden in Islam. The application of
bay’ al-‘inah and bay’ al-dayn is making the Islamic
financial industry lost its identity.
The bay’ al-‘inah and bay’ al-dayn issues are serious
because it is dealing with the fundamental (usul) of religion
which is riba or usury. Bay’ al-‘inah is just a legal device
(hilah) that using Islamic commercial law (i.e. through
trade and commerce) to obtain cash without implicating
riba. The object of sale comes into play by virtue of a trick
to get away with interest payments and receipts. However,
the main purpose of bay’ al-‘inah is to legitimize riba
which is forbidden in Islam. In Islamic commercial law,
sale of dayn at par value is permissible since this is equal to
the exchange of equivalence for equivalence (mithlun bi
mithlin) and the debt must be confirmed debt. There is no
room to profit from a debt trading. However, what is
happening in the capital market like in Malaysia, is sadly
discouraging and directly contradicts to the principle of
Shariah. The selling of bonds at premium or discount is
equivalent to the unequal exchange of money with money,
thus, implicates riba al-fadl to arise. Now, it is the time to
seek other alternatives for bay’ al-‘inah and bay’ al-dayn
such as musyarakah and mudarabah contracts. It is only
when we get to the basics; maqasid al-Shariah or the
objectives of Shariah can be achieved.
References :
Dr. Zainal Azam Abdul Rahman. 2003. “Islamic
Securities Play A Key Role”. The Star. Tuesday
3 June 2003. Pp 22.
Dr. Zainal Azam Abdul Rahman. “Currency
Fluctuation And Its Effects On Debts And
Obligations In Islamic Law”. Jurnal Undang-
Undang. Pp 21-38.
Dr. Zainal Azam Abdul Rahman. “Krisis Mata Wang
Dari Perspektif Islam”. Mingguan Malaysia.
Rosly, Saiful Azhar. 2005. Critical Issues on Islamic
Banking and Financial Markets: Islamic
Economics, Banking and Finance, Takaful and
Financial Planning. Kuala Lumpur: Dinamas
Publishing.
Munawar Iqbal and David T.Llewellyn. 2002.
Islamic Banking and Finance: New
Perspectives On Profit-Sharing and Risk.
United Kingdom. Edward Elgar Publishing.

Resolutions of The Securities Commission Shariah
Advisory Council. 2nd Edition.
[1] Murabahah : Sale at specified margin. However, the

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

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

MUAMALAT)
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Issues in Bay Al Inah and Bay Al Dayn

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

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ARZIM NAIM Chartered Islamic

SATURDAY, FEBRUARY 27, 2010

WILAYAH AL-DAYN AND PROPOSAL FOR

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

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

getting back to basics. This project paper endeavours

each party gets what it intended to achieve. It is

worth noticing that the contract of murabahah and

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

transaction possible. ASSOCIATION OF CHARTERED

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

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

intention or niyyah is not a significant element in

determining the validity of a contract. According to

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

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

(sahih) by the external evidence that they were

properly concluded; the unlawful intention (niyyah or

qasd) of the parties is immaterial, it does not

invalidate their act, unless expressed in that Act.

Imam Malik and other medinite jurists hold these

transactions as invalid or void. They consider the

second transaction along with the first, and regard

the grounds viable enough to suspect that the

purpose is to exchange an amount of money with a

higher amount that is deferred, which forms a

prohibited riba. The same opinion is shared with

Hanbali and Hanafi jurists.

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

so primarily on the assumption that there exists an

agreement between the parties to carry out the two

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

of the parties invariably ending up obtaining

immediate cash against a future obligation settling a

higher amount. It seems that both parties are

pretentious and have no commitment to the sale

contract. The fact that both parties have no intention

of using the asset as any consumer does betrays one

principle of contract in Islam, namely the objective

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

firms; the sale and resale contracts initiated by either

the bank or the customer saw no event by which

either party has assumed risk-taking and value-

addition in rationalising the profit taken. In both

transactions, each party has made a prior guarantee

that in every sale there will exist an automatic resale.

As such, neither is exposed to market risks and

liability arising from, say defective goods sold, if

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

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

commerce) to obtain cash without implicating riba;

to make forbidden thing permissible. The object of

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

with interest payments and receipts. Impliedly, bay’

al-‘inah implicates back door for interests.

2.2 Bay’ al-dayn

Dayn or debt is basically a liability of a person to

pay certain amount of money or in kind and the

obligation will reside until it is completely

discharged. Dayn is more general than qard (loan)