Bai inah is a traditional Islamic financial instrument that is used in Indonesia and some other countries in Southeast Asia. It is a form of borrowing and lending that is based on principles of sharia, or Islamic law, which prohibits the charging of interest on loans.
Bai inah works by one party selling an asset to another party, who then immediately sells the asset back to the first party at a higher price. The difference between the two prices is the "profit" that the first party receives, which is essentially the equivalent of interest in a conventional loan. However, because this profit is not explicitly referred to as interest and is not charged as a fixed rate, it is considered compliant with sharia principles.
Bai inah is often used as an alternative to conventional borrowing and lending, particularly in the context of small businesses or individuals who may not have access to traditional financial institutions. It can also be used for larger transactions, such as the financing of real estate or other assets.
One of the main advantages of bai inah is that it allows individuals and businesses to access financing without violating sharia principles. This can be especially important in Muslim-majority countries, where the prohibition on charging interest is a key aspect of religious doctrine.
However, bai inah also has some potential drawbacks. It can be difficult to determine the appropriate profit rate for the transaction, and the complexity of the instrument may make it difficult for some individuals to fully understand and use it effectively. In addition, there is some debate within the Islamic finance community about the permissibility of bai inah, with some scholars arguing that it is too similar to conventional interest-based lending and therefore not fully compliant with sharia principles.
Overall, bai inah is a useful financial tool that allows individuals and businesses to access financing in a way that is compliant with Islamic law. While it may not be suitable for every situation, it can be a valuable option for those seeking to adhere to sharia principles in their financial transactions.
Bai Inah
By my last count, 7 new Exposure Drafts was published by BNM yesterday and now it is time to digest them. It is now 2019. Criticisms are good, especially on the old structures. The Bank can transact any type of valuable Asset and on-sell it to the customer. Is Bai Inah permissible? For BNM, based on discussions with Sharia scholars, has requested that this interconditionality be removed from Bai Inah documents and to a larger extent, the Malaysian version of the Bai Bithaman Ajil.
It goes on to say that if the second buy-back contract is not executed, then the first sale contract is invalid and restitution going back to the original state must be effected. Or, difficulties are placed in identifying precisely which Asset is being transacted if there are request to take delivery. There have been many opinions to this, but I must admit that each argument has its own merits and rationale, and it is difficult to draw the line here. The replacement contract is to be developed sooner rather than later to facilitate the migration of personal financing to a more acceptable contract. It goes on to say that if the second buy-back contract is not executed, then the first sale contract is invalid and restitution going back to the original state must be effected to recover the Asset already sold; in this case the ATM Equipment. Having interconditionality clauses simply confuses the purpose of the transaction, which is debt creation.
This amount is to be paid back within 5 years Deferred. The purchase price must be clearly agreed upon, and so must the selling price, terms of which cannot be changed by any party without consent during the contractual tenure. Living with an alternative The newer banks from middle-east have introduced an alternative to the product under the Until then, Bai-Inah still provides a quick solution to building the books of Malaysian Banks. What is Bursa Suq Al Sila? Simply explained, Bai Inah is a simpler, flip version of The purpose of both structure is to create debt, and under both structure, cash can be obtained, therefore Bai-Inah can also be used to procure Assets. SO, WHERE HAVE WE GONE TO SINCE 2011? But for me, interconditionality is dependent on the Asset used for the transaction.
And the death of Bai-Inah will be good news for our Middle-Eastern colleagues; one less controversial contract to talk about. The classical jurists were in disagreement in assessing the legality of the contract. Some say the documents must be differentiated into 2 separate contracts. Practitioners has made efforts to differentiate the product from the conventional counterparts. As such impasse, most banks have removed both contracts from their shelves. Therefore: 1 The Sale of Asset contract is valid on completion of Aqad 2 The Buy-Back of Asset contract is valid on completion of Aqad 3 If the Buy-Back of Asset contract is not completed, the Sale of Asset remains valid as the Aqad is already completed. Profit is paid on the maturity date based on the receiving bank prevailing gross rates and the sharing ratio of the investing bank.
This margin is seen as too close for comfort to the concept of interest on top of a loan. One contract will therefore not be dependant on the other i. The way forward is to look at the Sharia structure of Tawarruq Commodity Murabaha and finding ways of making it efficient as soon as possible. One party should not compel the other party to re-sell the asset back to the same party. Tawarruq is considered an alteration based on the Bay al-Inah.
In a bai al inah transaction, a lender sells an asset to a buyer the borrower on credit for a fixed price the loan amount plus a profit element analogous to the interest amount in a conventional finance transaction. Let us be clear that most banks Bai Inah or BBA, and those which does, offer it as a continuation for a legacy arrangement or due to certain unavailable scenarios, such as fresh new documentations are not obtained for Tawarruq arrangement such as Wakalah to buy commodities. One could seek to legalise the sale of one thousand against one thousand five hundred by involving an asset in this manner. Important Notice: The contents of the above table, namely the details of Profit Sharing Ratio, Minimum Amount and Minimum Tenure are subject to change at the sole discretion of the Bank and customers should obtain confirmation from the Treasury Sales Team prior to making any decisions based on the above. Interconditionality means that for the customer to obtain cash, the customer MUST sell back the asset to the Bank, and failure to do so will result in the whole transaction being void, even if the first sale contract has been completed and concluded. But before going further, what is Bai Inah? Time to burn that midnight oil. Do not get stuck in the muddy past.
Because of this, Malaysian Islamic Banks have slowly weaned itself from such products and have since moved to other Islamic contracts. Islamic Term Deposits based on the Shariah concept of Commodity Murabahah cost-plus-sale where a specific asset as deemed fit by the Bank is identified and used as the underlying asset for the sale and purchase transaction between Bank and Customer. These usage is now done under the Tawarruq arrangement using Commodity Murabahah where the proceeds from the sale of Commodities is used to settle the purchases of houses or commercial properties. Tawarruq structures sounds alien to some of them, as their teachers prefer to teach BBA and Bai Inah to unlock its controversies as points for discussion. But the issue arises where the buyer is not willing; what is his options then? Others say the wording in the legal documents and customer forms can solve the problem. Profit is paid on the maturity date based on the actual return of the accepting bank. This simply means that should if one party sells its asset to another party, at a selling price, the original owner of the asset should not impose on the other party to on-sell it back to the original owner.
Qardhul hasan is a benevolent loan without any additional payment in its principal. The uproar in the industry was therefore expected. These usage is now done under the Tawarruq arrangement using Commodity Murabahah where the proceeds from the sale of Commodities is used to settle the purchases of houses or commercial properties. The idea that the customer cannot be compelled to re-sell the assets back to the bank or banks not allowed to buy-back is a risk banks are not willing to take. One party should not compel the other party to re-sell the asset back to the same party.
For many years, Malaysia have been taking heat on its use from international forums. And with Tawarruq arrangements now being ably supported by good infrastructure such as Bursa Suq As Sila trading platform and other commodity brokers worldwide, there is no issue of Darurah emergency to justify the continued usage of Bai Al Inah or BBA. Of the 4 Islamic jurists, only the Shafie school of thought has, to some degree, allowed the Bai-Inah contract to be used in times of darurah emergency. However, the main concern that BNM has were mainly on the way the contract is executed, that it no longer reflects the orginal intention envisioned for the contract. Tawarruq structures sounds alien to some of them, as their teachers prefer to teach BBA and Bai Inah to unlock its controversies as points for discussion.
