Islamic personal financing, bayc alcinah, tawarruq. Proceedings international conference on corporate law iccl 2009, 1st 3rd june 2009, surabaya, indonesia. In the latter case, the issue is serious when the second contract does not follow, which is the buyback from the bank. It is a financial product structured to satisfy customer cash needs in accordance with shariah. This transaction is nowadays being used by many islamic banks for liquidity management and as a mode of financing especially for personal financing and credit cards the following list summarizes a research paper by mufti muhammad taqi usmani, which describes his point of view regarding this mode of financing. This, in turn, creates practical difficulties when applying bay inah in the modern financial landscape. A contract that involves the sale and buy back of an object commodity, asset, etc by the same two parties. Reach us at 187786ijara 8778645272 or contact us below. Bai al inah sale and buyback agreement bai al inah is a financing facility with the underlying buy and sell transactions between the financier and the customer. Islamic personal financing instruments in the malaysian banking industries. According to iifm sukuk report third edition 20, no bay al inah international sukuk were issued from 2001 to 20 and only a few bay al inah sukuk were issued after that. Bay al dayn is considered a controversial issue because some countries practice it and some leave it out without prior improvement taking place. Bai salami arabic, more accurately transliterated as bai us salami is an islamic contract in which full payment is made in advance for specific goods often agricultural products to be delivered at a future date. The purchaser then sells the asset to the third party on cash with a price lesser than the deferred price, for the purpose of getting cash.
Nursyamsiah t and kayadibi s, application of bay al inah in islamic banking and finance. Islamic law of contracts islamic banking and finance. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. Identify the issues of the bay alinah, tawarruq and wad encountered by the islamic banking industry and proposal of an alternative solution to it. Pdf tawarruq as a product for financing within the. United arab bank, qnb al islamic, standard chartered of united arab emirates, and bank muaamalat of malaysia as a liquidity management instrument and as a mode of financing especially for personal financing and credit cards. Table of content general introduction shariah issue one. However, the problem with malaysian islamic bonds has been the application of bay alinah and bay aldayn, which is not wellaccepted by the middleeastern investors. While personal loan in conventional banks is interest based, personal financing in islamic banking adapts the principle of bai allnah, which is essentially sale based on the transaction of nasiah delay. The price paid by the financier constitutes the disbursement under the facility. Bai inah, as used in malaysia in particular, to provide for a means for personal financing, has always been treated as the ugly stepsister of islamic banking. Ibn rushd examines the three forms of sale that can arise in a market where goods and money are in existence. Conditionality tawarruq personal financing is found to be similar like his sister, bay al inah.
Qnb al islamic, standard chartered of united arab emirates, and bank muaamalat of. Maslaha and maqasid alshariah concepts on islamic banking. Tawarruq as a product for financing within the islamic. Tawarruq was a term originally introduced by imam hanbali in his book kitab syarh muntaha al iradat, known as daqaiq awla annahyu li syarhi al muntaha, to differentiate the concept of inah from the classical tawarruq. On the other hand, inah repurchase by the seller is a replication of a conventional loan interestbased lending and borrowing. Thus, the demand for it has tremendously increased. Saiful azhar and azizi 2003 bai allnah is allowed by the shafie.
Malaysia believes that the buying and selling of altawarruq is halal as the basic rule for the legitimacy of the agreement, which has been applied in private financing in islamic banks, as well as a commodity murabaha on bursa malaysia namely bursa suq alsila. There are differing opinions between middle eastern scholars and south east asian scholars, from a shariah perspective, on if a bai alinah is an acceptable financial practice. The financier buys an asset from the customer on spot basis. It started in the early 1980 s when the government, aware of the need for legal practice according to syariah in the financial market decided to implement it. Listed below are rate indications for some of our more popular loan programs. Bai salami covers almost every thing which is capable of being definitely described as to quality, quantity and workmanship. Tawarruq was a term originally introduced by imam hanbali in his book. Application bay al inah in islamic banking for now only two. Such structures of pf, as meticulously analyzed by kahf 2015, are not shariahcompliant because these are in substance simply exchange of cash now for a larger amount of debt in future. Bay alinah is the sale of the same commodity between the same two counterparties sale and buyback at different prices in proportional consideration to the period of credit repayment. The application of bay altawarruq in islamic banking. Conventional banks provide a number of products for personal finance such as personal.
Tawarruq was a term originally introduced by imam hanbali in his book kitab syarh muntaha aliradat, known as daqaiq awla annahyu li syarhi almuntaha, to differentiate the concept of inah from the classical tawarruq. In the light of these rules correct positions of controversial contracts like bay al inah, bay al wafa, tawarruq, commodity murabahah, and sale and lease back sukuk can be determined. Islamic personal financing is normally based on two shariah principles, namely qardhul hassan and bay al. It is a mystery because starting from 201220 period, the instructions on interconditionality issued by bnm to islamic financial. In the maliki fiqh book almutwatta, which was written by imam malik at. For islamic banks this product is an ideal for agriculture financing but can also be used to finance the working capital needs to the. This simple form of murabahah involves the islamic bank buying some object from the customer such as their house or motor vehicle for cash, then selling the object back to the customer at a higher price, with payment to be deferred over time. Since the school of fiqh of muslims in malaysia is predominently sh. Islamic finance is structured in such a way so as to comply with the principles of islamic, or sharia, law. Tawarruq personal financing brings equilibrium to bank customers. Pelaksana bay alinah dalam pembiayaan peribadi personal. Besides that, the bay al inah contract is often used in consumer banking instruments such as house financing and personal financing. This provides a context to deal with the stands of various schools of jurisprudence towards the legal devices and stratagems hiyal.
This study hence, attempts to seek opinion of scholars shariah advisory council, muftis and practitioners on the usage of bai al imh and its alternative, tawarruq. Tawarruq also called a reverse murabaha and sometimes a commodity murabaha also allows the banking customer to borrow cash instead of finance a purchase, and has also been criticized by some jurists. Clews, in project finance for the international petroleum industry, 2016. From the viewpoint of siyasah shar iyyah 3rd annual world conference on riba the multifaceted global crises of riba. Critical issues on islamic banking and financial markets. Nov 27, 2012 1 bay alinah 2 tawarruq 3 wad 4 al ijarah al muntahiya bittamleek 5 statutory declaration objectives of the research. Inah has been widely adopted in south east asian countries as a means of cash liquidity mohamad and. Tawarruq in islamic finance posted on march 5, 2011 by camille paldi. From this study, it was found that the mechanism of al tawarruq, can not be regarded as an islamic financial products, because a lot of flaws in it. After that, it sells the product at a higher price to the cardholder and makes a profit. Tawarruq personal financing brings equilibrium to bank. In the event of a banking crisis, one who defaults on the inah sale will face similar consequences as most loan defaulters, and bad debts will deplete capital. According to the institute of islamic banking and insurance, it serves as a ruse for lending on interest, but bai al inah is practised in malaysia and similar jurisdictions. What is the difference bay altawarruq and bay alinah.
Azman mohd noor department of fiqh and usul al fiqh international islamic university malaysia. Bay al inah is a concept whereby the bank acts as the buyer as soon as the credit card is used. Azman mohd noor department of fiqh and usul alfiqh international islamic university malaysia. This book tries to explore the place of islamic financial contracts in modern financial markets, whether islamic financial instruments actually reflect true label. Some issues of bay alinah in malaysian islamic financial. Why are you still asking me about bba and bai al inah it remains a mystery when people ask me why malaysia continues to offer bai bithaman ajil bba and bai al inah products, as according to them, these structures are based on elements of hilah trickery. Money, islamic banks and the real economy abdul ghafar ismail. The customer now has cash and will be paying the bank back a larger. Tawarruq transactions are being used by many islamic banks e. Islamic banking product and service ibo islamic finance.
The main purpose of this paper is to study the scenario of islamic bond in malaysia. The book of allah revealed to the prophet muhammad as a supreme source of islamic law. The organization of this book summary key terms and concepts questions chapter 2. Islamic personal financing instruments in the malaysian. Many calls were made for the abolishment of bai inah were made as it is perceived as a close substitute of ribabased conventional loan and that there is very little to separate the two. Tawarruq as an alternative contract for bay al inah in islamic personal financing 20 in addition, islamic bank system also offer credit card to its customer. While the object of research is the view of the scholars of fiqh against al tawarruq, aspects of financial products, and the framework of islamic law. Personnel financing evidences working capital financing pillars istisna between 2 parties bba financing products opinion of scholars islamic credit card sukuk bbaapplication sukuk murabahah islamic overdraft. In tawarruq the customer would buy some amount of a. A bay al inah is very similar to tawarruq, but in tawwaruq there will be a third party that is involved in this type of islamic finance as an intermediary.
The bay alinah controversy in malaysian islamic banking. Jan 09, 2019 bai al inah usually bai inah is deployed for personal financing or working capital financing and even islamic credit cards. Some have even phased out bay inah based products from their portfolios. Bay al dayn free download as powerpoint presentation. Bai alinah and tawaruq as a solution to interestbased. Halal islamic sharia financing usa canada ijaracdc. Definition of bay alinah inah is a loan or an advance payment which is said in arabic as i. Determinants of customers intention to use islamic personal. Application bay alinah in islamic banking for now, only two countries which are malaysia and brunei darussalam allow bay alinah applying in their banking system. Since then, malaysian islamic banking system has started to actively use tawarruq as an alternative to bay inah. Rafidah binti hj mohd azli centre of islamic thought and understanding citu. Their shariah scholars concur that majority of scholars and financial institutions prohibit inah, though wonder the issue as a kind of ijtihad personal reasoning that permits divergence of ideas.
Classical madhhab have different views pertaining to the. Bay al sarf is a contract of exchange of money for money. Assets are wide ranging under the books of the banks. Bai al inah literally, a loan in the form of a sale, is a financing arrangement where the financier buys some asset from the customer on spot basis, with the price paid by the financier constituting the loan. As a result, several ibfs products under the maslaha concept have been successfully introduced in conventional banking such as bai alinah and tawarruk for personal financing and islamic credit card service, bba and murabahah for home financing and bai aldayn for islamic debt financing. Since loaning of cash for profit is forbidden in islamic finance, there are differences of opinion amongst the scholars on the permissibility of bai al inah. Bai al inah literally, double sale or a loan in the form of a sale, is a. It is not the intention of this chapter to discuss the contentious issue of the legitimacy of bay al inah in islamic law, as it will be dealt with later in a relevant chapter, but the question that should be asked in this. Reverse murabaha tawarruq in islamic finance dummies. Application bay al inah in islamic banking for now only. Issues bay al inah have two contract which is sale contract and repurchase contract. A seller immediately buys back the asset he has sold on a deferred payment basis at a price higher than the original price.
Please note these are only general rate indications. Jun 30, 2019 interest riba is forbidden in islamic banking, so why do we find it so hard to avoid it. Application as far as hilah is deemed as demeaning the religion, bay alinah will not be acceptable. This paper argues that both these mechanisms have been found. The contract of bay alinah and bay aldayn is seen as something similar to riba based financing. Revolving credit, islamic overdraft, personal financing, home financing, credit cards. In the world of contemporary islamic personal financing, certain instruments have been. Tawarruq means to buy on credit and sell at spot value. More specifically, under an einah contract, one party acts as a seller and the other as a buyer in the first stage then, in the second stage, the seller becomes a buyer and the buyer a seller of the same object for two different prices. Tawarruq the new kid in islamic banking new straits. However, there exists some concern over the treasure of riba, in the implementation bai al inah in personal financing. Again, tawarruq arrangements has generally replaced these usage with the end result of providing cash. This will certainly pose a great challenge to the malaysian.
A bayal inah is very similar to tawarruq, but in tawwaruq there will be a third party that is involved in this type of islamic finance as an intermediary. Application bay alinah has been used to construct numerous definition financing product offered by the bank in malaysia. Pdf islamic personal financing instruments in the malaysian. A sale in which the seller has the right, as stipulated in the contract, to repurchase the underlying property an estate like a house or land from the buyer by refunding the purchase price.
Bay al inah is a sale contract with immediate repurchase. The value of the land has been computerized in the system and. Tawarruq means converting an asset into wareq or money. Shariah issues ordinary and preference shares from shariah perspectives investment in common stocks. The raison detre of this article is to supply basic insights on the origin and characteristics of the islamic banking system, its distinguishing features, and related contentious issues that have remained the subject of ongoing debates among sharia scholars and members of the academia. Bai al inah is not accepted in the middle east and north africa mena but in 2009 the. Issues and alternatives instruments in sharia such as unplanned bay c al c inah will also be subject to prohibition because it involves exchanging money for money through two contracts of sale. The sale and buyback of an asset for a higher price than that for which the seller originally sold it.
One of the foci of this criticism is the application of bay al inah in creating a number of socalled islamic financing products. Corporate finance personal finance public finance financial law financial regulation list of banks category. The right of redemption is given to the original seller upon an understanding that the buyer will give i. Subsequently, the asset is sold back to the customer who pays in installments over time, essentially paying back the loan.
This book has attempted to venture into several issues of islamic finance that incorporates the quranic conception of trading and commerce al bay. Bay al dayn is an islamic financial instrument which was developed and currently practised in malaysia. Opinion of the polemic in the issue of permissibility of bay al scholars inah is the status of hilah. You will find that bay mortgage corporation offers some of the most competitive interest rates and lowest fees on the eastern shore. The customer purchases an asset from the bank on deferred terms the purchase price comprise cost plus profit. The function of bay al inah tawarruq is a sale of an asset to a purchaser with deferred payment. Islamic finance products, services and contracts wikipedia. Abu bakar, azizi 2009 pelaksana bay al inah dalam pembiayaan peribadi personal loan di malaysia. In his book it mentioned that tawarruq is prohibited based on the. Sanusi financial contracts involving use of bay al inah and bay al dayn have been extensively used in design of malaysian islamic bonds.
This post carries on from previous articles that conclude 90% of all islamic banking assets globally are priced at interest here and 99% of the assets and liabilities of a specific islamic bank are priced at interest here. Bay al inah has been defined as to sell a commodity and buy it back or the bank purchases a commodity from its client on a spot basis and sells it back to the client. Implication of trading albay is expected to invite venture capital application in islamic banking and rationalizes universal banking model for islamic banks. In this structure, the bank purchases certain goods on spot basis from local or. Jun 19, 2012 justification of those that permit shafii approved bay al inah as financing mode definition a sale which is followed by a subsequent sale but evidences without any intention to have alinah arrangement. Personal financing bay al inah financing tawarruq financing equity financing diminishing musharakah property financing i features. Profit created from financial instruments devoid of risktaking ghorm and value addition kasb does not fit into the qurans outlook of al bay. Unlike a bay al ina it involves another party in addition to the customer, islamic bank and seller of the commodity. Islamic credit cards bay al inah, tawarruq, kafalahwakalah, ijarah, ujrah recap financial intermediation bank. The function of bay alinah tawarruq is a sale of an asset to a purchaser with deferred payment. Malaysia believes that the buying and selling of al tawarruq is halal as the basic rule for the legitimacy of the agreement, which has been applied in private financing in islamic banks, as well as a commodity murabaha on bursa malaysia namely bursa suq al sila. Islamic banks offer personal financing in malaysia based on the concept of bai al inah. Banking or banking activity that complies with sharia islamic lawknown as islamic banking.