BAY’ AL INAH AND TAWARRUQ

BAY’ AL INAH
DEFINITION

*A sale in order to get cash not property or

* a sale in which a commodity is sold for a deferred payment (thaman mu’ajjal) and

*then resold to the seller on cash basis (which is cheaper than deferred price)

*The owner of the commodity will get the commodity back plus the payment which is deferred whilst
the customer will get ‘cash’ and settle the obligation of payment on instalment basis.

MODUS OPERANDI

There are two contracts involved :

i) Contract of Sale; and

ii) Contract of Purchase.

1st contract : Bank sells certain asset to a customer on deferred term

*RM70 000 = Financing amount + profit margin = Bank’s selling price

2nd Contact : Bank subsequently purchases the asset back from the customer on cash basis

**RM50 000 = Financing amount = amount of cash needed by the customer = bank’s purchase price
PERMISSIBILITY OF BAY’ AL-INAH

Different views of Muslim scholar in Bay’ Al-Inah

Mazhab Syafi’I supported by Ibn Sale Is permissible

Hazm and shariah Advisory
Council of Bank Negara Malaysia
Majority of the Scholar including Sale is forbidden
Hanafi, Maliki and Hambali

Many Muslim jurist consider it is prohibited because it is open door to riba (back door riba or hilah to
riba)

EVIDENCE : PERMISSIBILITY & PROHIBITION

Permissibility:

“… In another vein, if a man buys a commodity from another vein, if a man buys a commodity from
another person, and the payment is deferred to a stipulated time, there is nothing wrong if he sells it
back to the person he bought it from or to another person for cash at a price lower or higher than the
price at which he bought it, or for a debt or barter of a commodity at a value he chooses to assign to it.
The reason here is that the second transaction is not linked to the first transaction”.

EVIDENCE : PERMISSIBILITY

Qiyas (Analogical Reasoning).

*Bay` al-Inah is valid.

*Equivalent to sale to a third party.

*The second sale is separate from the first sale.

*The buyer has possessed by virtue of making installment.

*Hence, it is his right to sell on to anyone (including method, lower or higher pricing.

Malaysia Shariah advisory council’s resolution on Bay’ Inah

On 12 December 1998, there was a meeting held by the Shariah Advisory Council of Bank Negara
Malaysia resolved that Bay’ al-Inah is permissibile subject to the following two condition:

• Syafi’i school accepted if the transaction of Bay’ al -Inah is strictly following the mechanism.

• The transacted item is not involve in ribawi item ( goods that are not in consonance with fiqh rules
with respect to cash or items sold by weight and/or measure)
EVIDENCE : PROHIBITED

Ibn Umar reported that Rasulullah had said: ‘If you sell to one another with al-Inah, and follow (from
behind) the bull’s tail and are satisfied with farming and abandoned al-jihad, Allah will force you into a
state of humiliation and He will not remove it until you return back to your religion.

Narrated by Abu Ishaq, from his wife Aliyah binti Anfa`: It was reported that Saydatina Aishah was asked
by a mother (a slave belongs to Zaid bin Arqam) about a particular transaction dealt by her. She said: ‘O
Ummu al-Mu’minin! I have sold a slave of Zaid bin Arqam to `Ata’ at 800 dirham in credit (on behalf of
her master). Because of `Ata’ (the buyer) needed some amount of money (cash), I have purchased the
slave back at 600 dirham in cash. Saydatina Aishah responded: ‘How could you fulfill such a bad sale.
You should inform Zaid bin Arqam that the said transaction has removed all his rewards throughout his
participation in jihad with the Prophet (peace be upon him), if he does not repent’. According to the
majority of jurists, Aishah assertion clearly indicated that ‘Inah was unlawful contract.

CONDITION

*The ruled Bay’ al-Inah is acceptable subject to the following conditions :

I. The mechanism practiced is acceptable to the shafi’i school.

II. The transacted item is not a ribawi item(goods that are not consonance with fiqh rules with respect to
cash or items sold by weight and/or measure).

III. The buyer must receive (take possession) the good before selling it back to the original seller

APPLICATION

1. Working capital financing

2. Islamic credit card
3. Personal financing
4. BBA financing

ISSUES

*Bay al-Inah have two contract which is sale contract and repurchase contract.

*The issues raised in term of existing two sales in one sales.

*The hadith have stated that prohibit the carrying out of two sale contract in one sale contract, as well
as that of relating a sale with conditions contravening the requirement of that sale.

*No actual selling and buying transactions (bai’) and the assets are never leave the bank also one of the
issues pertaining to Bai inah
TAWARRUQ
DEFINTION

*Tawarruq comes from the root word of “al-wareq”. It brings the meaning of dirham or money. (Dusuki,
2010)

*Technically: As per define by OIC, Tawarruq means the commodity was bought by somebody
(Mustawriq) at a deferred payment and sells it to the other person other than the first seller at a
discount price and with immediate payment. (Tijani, 2013)

FORM OF TAWARRUQ

1. Classic
2. Organize

CLASSICAL TAWARRUQ

DEFINITION:

*Classical Tawarruq is the original practices of tawarruq process where the one who need the cash
immediately will buy the asset from the seller by instalment and cash plus profit. And then he needs to
find another buyer which is other than the first seller who willing to buy the same asset by cash but at a
lower cost.

MODUS OPERANDI (lukiss)

ORGANIZE TAWARRUQ

*Define as:

According to OIC Fiqh Academy Organize Tawarruq can be defined as the bank arrange the transaction
where it sell the commodity to the customer by installment (cost plus profit) and at the same time the
bank will act as an agent to the customers, finding the new buyers who’s willing to pay at the cash basis
at the lower price. Then the bank will transfer the funds to the customers. (Hadad D. A., 2010)

MODUS OPERANDI (lukis)

PERMISSIBILITY – LEGAL EVIDENCE

*First was based on the Qiyas (analogy) which the contract is similar to other sales and purchase
contract in order to transfer the ownership.

*Based on Al Quran, Surah Al-Baqarah :275 “Allah permitted trade and prohibits riba”.

*On 28th July 2005 Bank Negara Malaysia had resolved that the deposit product and financing based on
the concept of Tawarruq known as commodity murabahah is permissible. (BNM, 2007)

IMPERMISSIBILITY

*Imam Ibn Taimiyyah from Hanbalites school regards that only permissible in the case of exceptional or
necessity (darurhat). In his book it mentioned that Tawarruq is prohibited based on the reason of the
“illah of Riba” (Ismon, 2011)

*April 2009 International Islamic Fiqh Academy together with Organization of Islamic Conference (OIC)
announced that Organized Tawarruq is impermissible. (Zuberi, 2009)

*AAOIFI the Islamic finance standard in the world also mentioned that Tawarruq is not permissible if it
didn’t fulfil the stated condition as per AAOIFI’s stated the details meaning of tawarruq.
CONDITIONS

*AAOIFI in its Parameters on Tawarruq transactions in its Shariah Standards No 30 outlines to ensure the
genuine application of Tawarruq.

4/1 : The requirements of the contract for purchasing the commodity on a deferred basis should be
completely fulfilled.

4/2 : The commodity sold should be well identified so as to become distinct from the other assets of
the seller

4/3 : If the commodity is not made available at the time of signing the, the client should be given a
full description.

4/5 :The commodity should be sold to a party other than one from whom it was purchased on
deferred payment basis.

4/7: The institution shoul not arrange a proxy of a third party to sell the commodity on behalf of the
client that purchased it from the institution.

APPLICATION

Products

1. Deposit product
2. Financing product
3. Sukuk ijarah
4. Bursa Suq’ Al-Sila

DEPOSIT PRODUCT (lukis)

CUSTOMER BANK (MUTAWARRIQ) TRADER B

TRADER A (MUWARRIQ)
BURSA SUQ AL SILA

An Islamic commodity trading platform for the Islamic financial and capital market.

Designed to serve as a multi-commodity and multicurrency platform, initially with trading of CPO
(crude palm oil) to serve the Malaysian market.

Shariah-compliant on end-to-end basis & designed to be in line with International Shariah standards.

Trading platform is fully electronic and web-based; access is via internet with multiple security
features.

ISSUES

1. Commodity
• Good commodity
• Something has value

2. Possession and delivery

• Object must exist
• Non-delivery

3. Agency
• The bank plays as financial
intermediaries, but at the same time be
an agent on behalf of customer.
SIMILARITIES BETWEEN BAY AL INAH AND TAWARRUQ

Objective : to obtain cash and liquidity

DIFFERENCES BETWEEN BAY AL INAH AND TAWARRUQ

ELEMENTS BAY AL-INAH TAWARRUQ

Definition a situation whereby a
person sells his
commodity to another
for a specific price with
payment delayed until a
fixed date, and then he
buys it back from the
other person at a lower
price in cash
Contracting Parties Involve 2 parties
Applications Personal Financing
Working Capital
Financing
BBA Financing
Islamic Credit Card
Muslim scholars Majority of them not
approve
Asset The asset return to the
first seller
Types No specified
A person who in need of
cash will buy the
commodity with the seller by
instalment and at agreed mark
up price.
Then he sells the asset
to the buyer who is
willing to pay via cash basis at
the original or lower price.
Involve 2 parties
Personal financing
Deposit financing
Sukuk
Bursa suq Al- Sila’
Majority of them approve
The asset does not
return to the first sellers
Classical Tawaruq and
Organized Tawaruq

CONCLUSION

*Both Al Innah & Tawarruq are both in controversial issues and impermissible.

*The root problem of these concept is come from the underlying assets.

*Suggestion:

I. Savings

II. Invest

III. Ar rahnu