Mastura Hashim

0735072

Sect 5

ECON 3510

Bai' al-Inah (Sale and Buy Back Agreement) Bay al-inah is generally known as sale based on the transaction of Nasiah (delay). It is a contract of sale where a person sells an article on credit and then buys back at a lesser price for cash. Example: A asks a loan of $10 from B. B, instead of asking for interest on this loan applies a contrivance. He sells an article to A for $12 on credit and then buys back from him the same article for cash at $10. The buying back agreement allows the seller to assume ownership over the asset in order to protect against default without explicitly charging interest in the event of late payments or insolvency. Such contract was evolved in the early period of Islam and it exists for the fundamental reason that a loan for interest is forbidden because it is equivalent to usury (riba). Muslim Jurists Views Muslim jurists are divided into two groups on this issue. The Shafi`i and the Hanafis consider this contract application as valid (sahih) because the intention of the parties is taken into account only when the invalid intention is explicitly mentioned in the contract; although it is haram to the former and makruh tahrimi to the latter. The Malikis, Hanbalis, and Shi`ah, contrarily they consider bai al -inah as void. As for them, they take into account the intention of the parties involved even if it is not mentioned in the agreement; provided one of the parties knows the intention. The Application of Bai' al-Inah in Malaysia: Bay al-inah is applied in Malaysian Banking System. One of the banks that apply this contract is Bank Rakyat. For more information about Bank Rakyat, visit www.bankrakyat.com.my . The practices of Bank Rakyat in terms of bai al inah are two. First, the bank will do exactly like the example stated earlier in the definition of bai al inah. They said that there is a qaul of syafie that allowed this practice. However this qauls allowance is only for exceptional cases, not the general laws. T he bank practice is more on legal tricks or Hiyal. Second, a person who owns a property (i.e. gold) is selling it to the bank with promise to buy it back on credit term so that the bank will not sell it to other parties. This process of circumstancing is just a matter to legalize Riba in the form of buying and selling contract. Beside banks, Malaysian Islamic Bonds also apply bai al inah. It is the same as the contract of loans because the additional profit from it is unjustified. In this case, the alternative that being suggested is Muqarada Bonds System.
www.islamic-world.net/economics/word/b.htm www.iiibf.org/journals/journal2/art1.pdf http://en.wikipedia.org/wiki/Islamic_banking Man, Assoc. Prof. Zakariya, ECON 1710: Foundation of Islamic Economic, p. 67