UNIVERSITI TEKNOLOGI MARA (UiTM) CAWANGAN MELAKA

ALOR GAJAH CAMPUS

IMU152
FIQH MUAMALAT

TITLE OF ARTICLE REVIEW:

ISSUES OF BAY’ AL- ‘INAH IN ISLAMIC FINANCIAL PRODUCTS AND ITS SOLUTIONS
ACCORDING TO THE SHARIAH PRINCIPLES

PREPARED BY:
NURUL ‘ASYIRAH HUSNA BINTI ROSLAN

CLASS:
MIC1102B

CHECK BY:
MADAM NORAJILA CHE MAN

DATE:
27TH MAY 2022

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 TABLE OF CONTENT

CONTENT PAGES

1.0 Full rewiew of the article 3

2.0 Opinion about the article 4

3.0 Summary of the issues 4-6

4.0 Summary of the solutions 6-7

5.0 Benefits derived from the article 7-8

6.0 Conclusion 8

References 9

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1.0 FULL REVIEW OF THE ARTICLE
This article discusses about Islamic finance that has developed from many years
ago. Bay' al-Inah is a sale contract with immediate repurchase. It takes place when a person
sells an asset in credit and immediately buys back the asset in cash at lower price. The
classical jurists disagreed in assessing the legality of the contract.
The author said that nowadays, the need for Islamic finance has grown rapidly, and
the field need to be developed to meet society’s expectations towards transactions that are
Shariah compliant and do not contravene with any Shariah principles. Conventional banking
has no advantages compared to Islamic finance.
Bay’ al- ‘Inah is one of the well-known sale-based contracts among Islamic financial
products. This type of contract has been applied by most of the Islamic Financial Institutions
(IFI) particularly in Malaysia towards their Islamic financial products. Although all the
controversial issues related to Bay’ al- ‘Inah have already been discussed before by Fiqh
scholars, due to the implementation of the underlying Shariah concept of Bay’ al- ‘Inah in
current Islamic financial products, it appears that new issues relating to ‘Inah have appeared
and need to be deliberated further by contemporary Islamic scholars to ensure that it is in
line with the development of Islamic financial products. One of the main Shariah issues that
has occurred in bay al- ‘Inah based contracts is the sequence of the implementation of the
‘aqad (contract) between the bank and the customers.
Hence, this research focus on this issue from several points of view, which include
the causes that lead to the issue, the best solutions according to the Shariah to rectify the
issue, and the consequences of the affected accounts if the issue is a Shariah compliance
issue. Besides that, this research also will try to explore the solutions and decisions from the
Shariah Committees of some of the Islamic banks in Malaysia. Thus, this research tries to
briefly state the decisions of the three banks that operate Islamic bank licenses, which are
AmIslamic Bank, Bank Simpanan Nasional and Agro Bank. To focus on the main issue of
this research, which is the sequence of ‘aqad, the researcher will also try to explore that
issue in some of the Islamic products that apply bay al- ‘Inah as the underlying Shariah
contracts, mainly on personal financing and home financing.
The author also mentioned about the applications of bay al- ‘Inah among banks in
Malaysia. It’s explored about the Islamic product, particularly Islamic personal financing, and
Islamic home financing. It has been listed the list of banks that provide personal financing

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and home financing. For AmIslamic Bank, its provide both personal and home financing.
While Agrobank and Maybank Islamic only provided for personal financing. BSN and Bank
Rakyat provide home financing only.

2.0 OPINION ABOUT THE ARTICLE

In my opinion, this article contains enough content for me to make a full review. It is
contained introduction of bay al- ‘Inah, the definition and concept of bay al- ‘Inah, current
applications of bay al- ‘Inah which are in personal financing product and home financing
product structure. It is also contained the roles and responsibilities of BNM, shariah issues in
and its solutions according to the current shariah committee. The main issues have been up
in the article is about the sequence of the implementation of ‘aqad and sequence of ‘aqad
issues in bay’ al- Inah contract.
For me, this article is very interesting because it gave me deeper knowledge about
bay al- ‘Inah and its give various information about its transaction, its current application in
the Islamic banking and finance product. The issues that have been up in this article is
relevant to me as a review to review this article. Because the issues have opened my mind
and my eyesight. This article makes me think deeper about the other way to resolve the
problem. It contained full solutions of the issues. It is also told about the current application
of bay al- ‘Inah in the Islamic banking and finance product. The first application of bay al-
‘Inah is personal financing product structure and home financing product structure. In this
part, it showed the details of the application of bay al- ‘Inah. It’s included the structure and
the example of the situation above structure. Obviously, this article eases me to organize the
information and to gain more of knowledge about bay al- ‘Inah’s current application.
Furthermore, it contained with roles and responsibilities of BNM. BNM play an important role
by imposing related guidelines and circulars on bay al- ‘Inah to all the Islamic banks as a
guide in ensuring that its product is properly structured and implemented. This information
gave me lot of improvements about and give me additional knowledge about Bank Negara
Malaysia (BNM).

3.0 SUMMARY OF THE ISSUES

In this article, it is stated two different issues related to bay al- ‘Inah. There have
been many Shariah issues that have arisen due to the execution of bay’ al- ‘Inah concept
towards Islamic financial product. First, the issues of the sequence of the implementation of
‘aqad. Next the mentioned issues are sequence of ‘aqad issues in bay’ al- ‘Inah contract.
According to the first issue, the problem of the sequence of aqad in the bai' al-' Inah concept
can be described as an improper sequence of aqad in each purchase and sale contract, with

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the aqad processes in both contracts not occurring at different intervals in the proper order.
This problem may have occurred during the pre-signing of the contract, where the customer
may have signed both contracts first before signing the first contract. According to Shariah
requirements, the first aqad must be completed first, followed by the second agreement. In
the common practice of the industry, as a sign of aqad as well as the ijab and qabul process,
the first contract must be signed by both parties, i.e., the bank and the customer, to conclude
the first contract, followed by the second contract. For example, when conducting Islamic
private financing, the bank signs the first contract as aqad of ijab (offer) to the customer, and
then the customers must sign as aqad of qabul (acceptance). At this stage, the asset
belongs to the customers. After the first agreement is made, the second agreement must be
made in which the customers offer to sell the asset back to the bank. So, in the second
agreement, the customers first sign as aqad of ijab to the bank, and the bank signs as aqad
of qabul. In the last stage, the bank disposes of the asset again and the customer receives
his money from the personal finance agreement. In practice, the bank usually requires the
customer to sign both contracts at the same time to simplify the process. This creates the
problem of non-compliance with Shariah in terms of the sequence of aqad, which needs to
be addressed.
To assist Shariah committees in fulfilling their duties and responsibilities by ensuring that all
services and Islamic products comply with Shariah requirements, banks are expected to
establish Shariah compliance functions through reviews and audits and support these
functions with risk management control functions and internal research capabilities. This role
is typically performed by qualified Shariah audit and Shariah review and compliance
functions. According to BNM's Shariah Governance Framework (SGF), Shariah audit refers
to the periodic assessment conducted from time to time to provide independent evaluation
and objective assurance to add value and improve the level of Shariah compliance in
relation to the operations of Islamic financial institutions (IFIs), with the main objective of
ensuring a sound and effective internal control system for Shariah compliance. Meanwhile,
the Shariah verification function refers to the “periodic assessment of the Shariah
compliance of the IFI's activities and operations by qualified Shariah officers with the aim of
ensuring that the IFI's activities and operations do not violate Shariah."
Typically, Shariah issues can be addressed through Shariah audit planning
conducted by Shariah audit offices and through regular Shariah audit conducted by the
Shariah audit functions. One of the approaches is to review the documentation associated
with Islamic financial products. There are many types of aqad processes supported by
Shariah principles. The two main types of aqad that are widely used in current Islamic
financial products are written aqad (aqad bi al-kitabah) and oral aqad (aqad bi al-khitabah).
The signatures of all parties involved in the agreements are considered as a written aqad

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process. An oral aqad is carried out through a two-way communication between the
contracting parties in the form of telephone conversations. In oral aqad, the communication
process is usually recorded to legally enforce the aqad. Thus, from the two aqad procedures,
aqad bil kitabah and aqad bi al-khitabah, the question of the order of aqad can be derived as
follows.
The second issues that the author was stated is regarding to the issue of the order of
aqad, the decision of SC is considered either potential or actual non-compliance. The
potential non-compliance, after interviewing the shariah officials, the issue is usually treated
as a potential violation due to human error. Some of the bank staff or lawyers may also have
forgotten to note the time and date in the agreements. Second, the actual problem. The
issue is decided as an actual violation after considering several factors. After thorough
review by the Shariah Officer and the Bank's Aqad Procedure staff and representatives and
attorneys, they will confirm whether the issue is an actual shariah violation that may be the
result of antecedent events or other events that may be considered to have caused the
issue.

4.0 SUMMARY OF THE SOLUTIONS

In this article, the author gave the solutions for the issues related to bay al- ‘Inah. The
solution for the sequence of the implementation of aqad is the first step is for the Shariah
Officer to present the problem of non-compliance that has occurred in the execution of the
contracts to SC to give a clear picture of the problem in terms of the Shariah perspective and
the operational perspective. It also informs SC of the root causes that led to the problem,
whether human error or a system failure. In the second step, after consulting with the
Shariah officer, SC decides whether the problem is a potential problem or an actual problem.
The author mentioned that a potential problem is any pending decision by SC on the
identified problem that is treated as a potential Shariah violation. Therefore, all potential
Shariah issues reported by SC must be further reviewed and investigated by the Shariah’s
officer. Then the same issues will be presented at the next meeting. If the problem is
classified as an actual Shariah violation, further action will be explained in the next item. If
the problem is classified as a non-problem, it will be removed from the list of Shariah
problems. And the actual issue is If the issues are treated as an actual Shariah non-
compliance, there will be two implications that need to be considered, which comprise of
financial implications and non-financial implications. If the issue impacts financial income,
then the income earned must be adjusted by charity. If the problem is treated as a non-
financial impact, corrective action must be taken to clean up the problem. Regarding to the
issue of the sequence of aqad, the decision will be deliberated by the SC as either a
potential or actual non-compliance issue. Potential to the interview session organized

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between the shariah officers, usually the issue will be treated as potential non-compliance
issue due to human error. The problem is some of the bank’s officers may also have
forgotten to write down the time and the date in the agreements. For the actual issues. It will
be decided as actual non-compliance issue after several factors have been considered. After
thorough investigations between the Shariah Officer and the Bank's staff and Aqad
representatives and lawyers, they will confirm whether the problem is indeed a Shariah
violation that may be the result of previous events or other events that may be the cause of
the problem.
This procedure was confirmed by the SC because the aqad has already been
declared invalid, which is a violation of the aqad procedure. The violation is that the two
aqad in the bai' al-'inah process, which consist of the contract of purchase and the contract
of sale, are executed simultaneously without the first contract being completed. As
mentioned in the Hadith of Prophet Muhammad (peace be upon him): “Rasulullah (peace be
upon him) prohibited two transactions within one.
The impact resolution of the Shariah’s committee is considering that the agreements
in the personal financing and home financing products have already been found null and
void, according to the Shariah principles, some steps must be taken to rectify and solve the
problem: Financial impact. If there is a financial impact while the contracts have already
been concluded, the contracts between the bank and the customers must be concluded
again. For example, the customer has already committed to pay monthly installments or
receive the cash payment. In addition, the profit from this transaction (before corrective
action is taken) is considered a non-shariah compliant profit and is adjusted by sending it to
charity. second, non-financial impact: If a non-financial impact occurs in the initial phase of
the contract or if the money has not yet been disbursed to the customers' accounts, the bank
only needs to re-execute the aqad to ensure that it is compliant with shariah requirements.

5.0 BENEFITS DERIVED FROM THE ARTICLE

From this article titled “Issue of bay al- ‘Inah in Islamic Product and Its Solutions
according to Shariah Principles”, I have gained many knowledges and benefits about bay al-
‘Inah. First, when I read this article, automatically I got new knowledges about bay al- ‘Inah,
its definition, applications, issues, and its solutions according to shariah principles. It can be
concluded that it is not just a knowledge, but it is a summary of a collection of knowledge
based on generally accepted theories and is obtained through a series of systematic
procedures, tested by a set of methods that are recognized in a particular field of bay al-
‘Inah. From this article, I can conclude that toughest issue to tackle comes exactly with one
of the features attributed to Islamic finance as a major positive: financial stability, as it
avoids destabilizing debt-deflation dynamics, as well as contracts murky risk definitions, by

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prohibiting interest-based transactions and asymmetries in kinds of risks born by
participants. As it imbeds a commitment to back all financial contracts by assets and
activities in the real economy, derivative instruments such as options and futures are hard to
obtain. If one considers that a prudentially well-managed, full-fledged financial system brings
economic advantages that outweigh its potential instability, Islamic finance then implies an
inevitable opportunity cost. A certain parallel can be made with ESG investments with a
performance below non-ESG portfolios that is more than compensated, from the standpoint
of investors’ preferences, by ensuring adherence to certain principles as a value. Examples
of non-pecuniary compensation can also be found in non-Muslim faiths—the STOXX Index
for example only selects companies classified as respectful of Christian values. Sharia
compliance may well be deemed as a benefit greater than any economic opportunity cost for
those who favor its use.

CONCLUSION
In conclusion, it is observed that the bay al- ‘Inah contract is a controversial
contract. To avoid from any shariah non-compliance event, certain requirements,
terms and conditions according to the shafie’s school of thought need to be observed
properly. It is also observed that the main factor that leads and contributes to the
shariah non-compliance issues is the human factor. Thus, it is suggested that every
bank improves their bank personnel with shariah related knowledge and
understanding, especially on the basic requirements of the shariah contracts and
their applications towards the bank’s product’s. Besides that, it is suggested that
Islamic banks should explore other Shariah concepts that are suitable for their
Islamic financial product. Islamic finance as it exists today has been shown to reduce
economic efficiency by increasing transaction costs, without providing any
substantial economic value to its customers.
Many have argued that the industry is actually demand driven, and hence
jurists and lawyers engaged in shariah arbitrage provide value, by bringing
conventional financial products to a market segment that would not have access
otherwise. Thus, proponents of that argument assert, shariah- arbitrage mechanisms
should be seen as enabling juristic efforts to recharacterize modern financial
transactions (takhrij fiqhi), rather than legal stratagems to circumvent prohibitions
(hiyal Sharʿiyya). Moreover, the argument continues, to the extent that Islamic legal
restrictions have economic content, the gradual progress of Islamic finance toward
increasingly more efficient and more authentically Islamic products will eventually

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allow the industry to serve the Islamic ideal. In fact, however, Islamic finance has
been largely a supply-driven industry, with jurists who participate actively in shariah
arbitrage helping to expand the industry's customer base through indirect
advertisement (at various conferences and publications), as well as religious
admonishment that Muslims should avoid conventional finance. The form-above-
substance juristic approach to shariah arbitrage has also been shown to squander
the prudential regulatory content of premodern Islamic jurisprudence, while reducing
economic efficiency for customers through spurious transactions, not to mention
legal and jurist fees.

References
Canuto, O. (2018, November 5). Benefits and Costs of Islamic Finance. All about Islamic,
20-23.
Mohd , F. M., Nik, A. N., Mustafa , M., & Akhtarzaite, A. (2018). ISSUES OF BAI' AL-
'INAH IN THE CONTEMPORARY ISLAMIC FINANCIAL PRODUCTS AND ITS
SOLUTIONS ACCORDING TO THE SHARIAH PRINCIPLES. South east Asia
Journal of Contemporary Business, Economics and Law, 96-103.
Saiful, A. R., & Mahmood, S. (2001). Some Issues Bay al- 'Inah in Malaysian Islamic
Financial Markets. Problem Statement, 263-280.
Tita, N., & Saim, K. (2012, January). APPLICATION OF BAY AL-INAH IN ISLAMIC
BANKING FINANCE: From the Viewpoint of Siyasah Shar'iyyah. Islamic
Economic, 1-208.

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(Mohd , Nik, Mustafa , & Akhtarzaite, 2018)

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