BAI` DAYN

RESOLUTION

At its 2nd meeting on 21 August 1996, the Shariah Advisory Council

(SAC) unanimously agreed to accept the principle of bai` dayn i.e. debt

trading as one of the concepts for developing Islamic capital market

instruments. This was based on the views of some of the Islamic jurists

who allowed this concept subject to certain conditions. In the context of the

capital market, these conditions are met when there is a transparent regulatory

system which can safeguard the maslahah (interest) of the market participants.

INTRODUCTION

From the Islamic jurisprudence point of view, dayn encompasses a wide

scope, including payment for product, qardh (loan) payment, mahr (dowry)

payment before or after cohabitation, that is mahr which has not been

given after the marriage `aqd (contract), rental, compensation for crime

committed (arsy), compensation for damages, money to be paid for divorce

(khulu`) and for purchase orders which have not yet arrived (muslam fih).31

In the context of the Islamic capital market, bai` dayn is the principle of

selling the dayn which results from mu`awadhat maliyyah contracts (exchange

contracts), such as murabahah, bai` bithaman ajil (BBA), ijarah, ijarah

munthiyah bi tamlik, istisna` and others.

ARGUMENTS THAT SUPPORT THE PERMISSIBILITY OF

BAI` DAYN

The bai` dayn principle has always been a point of contention among past

and present Islamic jurists. However, there is no general nas or consensus

(ijmak) among those who forbid it.32

In general, the majority of Islamic jurists are unanimous in allowing the

activity of selling debts to the debtor.33 They only differ in opinion about

selling the debt to a third party for the reason that the seller will not be able

to deliver the sold item to the buyer.

At its 8th meeting on 25 January 1996, the IISG identified the `illah (reason)

for why some Islamic jurists do not allow bai` dayn. The `illah generally touches

on the risks to the buyer, gharar,

34 absence of qabadh 35 and riba.

Opinions of Past Islamic Jurists

The Hanafi Mazhab looked at bai` dayn from the aspects of potential risks

to the buyer, debtor, and the nature of the debt itself. They were unanimous

in not permitting this instrument because the risks cannot be overcome in

the context of debt selling. The debt is in the form of mal hukmi (intangible

assets) and the debt buyer takes on a great risk because he cannot own the

item bought and the seller cannot deliver the item sold.36

The Maliki Mazhab allowed debt selling to a third party subject to certain

conditions to facilitate the use of this principle in the market. The conditions

are as follows:

(a) Expediting the payment of the purchase;

(b) The debtor is present at the point of sale;

(c) The debtor confirms the debt;

32 Ibnu Qayyim al-Jauziyyah, I`lam al-Muwaqqi`in, Dar al-Fikr, Beirut, vol. 1, p. 388.

33 Al-Zuhaili, Al-Fiqh al-Islami, vol. 4, p. 433.

34 See SAC resolution on gharar for further explanation.

35 Qabadh means the control and ownership of the item bought. It depends a lot on `urf or the normal

recognition of the local community. See SAC resolution on qabadh for further explanation.

36 Al-Kasani, Badai’i` al-Sana’i`, Dar al- Fikr, Beirut, vol. 5, p. 148.18

Resolutions of the Securities Commission Shariah Advisory Council

(d) The debtor belongs to the group that is bound by law so that he is

able to redeem his debt;

(e) Payment is not of the same type as dayn, and if it is so, the rate should

be the same to avoid riba;

(f) The debt cannot be created from the sale of currency (gold and silver)

to be delivered in the future;

(g) The dayn should be goods that are saleable, even before they are

received. This is to ensure that the dayn is not of the food type which

cannot be traded before the occurrence of qabadh; and

(h) There should be no enmity between buyer and seller, which can create

difficulties to the madin (debtor).

The conditions set by the Maliki Mazhab can be divided into three categories:37

(a) To protect the rights of the debt buyer;

(b) To avoid debt selling before qabadh; and

(c) To avoid riba.

The Syafi`i Mazhab was of the opinion that selling the debt to a third party

was allowed if the dayn was mustaqir (guaranteed)38 and was sold in exchange

for `ayn (goods) that must be delivered immediately. When the debt was

sold, it should be paid in cash or tangible assets as agreed.

Ibnu al-Qayyim was of the opinion that bai` dayn was permissible because

there was no general nas or ijmak that prohibited it. What was stated was

the prohibition of bai` kali’ bi kali’.

i kali’ is bai` nasi’ah bi nasi’ah which means

a debt sale that is paid by debt. For example, one buys food on credit for two months. When the time

comes, he should redeem his debt. However, he says to the seller: “I still have no food to pay my debt,

so sell it to me for another period.” The seller then sells it to him for another period and increases the

price. In this case, the buyer did not receive anything in exchange when being charged for extending the

period of payment.19

Principles of Muamalat in the Capital Market

Results of the study showed that the main reason for the clash of opinions

on bai` dayn among the past Islamic jurists centred on the ability of the seller

to deliver the items sold. This was stated by Ibnu Taimiyyah himself and was

also based on statements made in the great books of the four mazhab.

The argument of the Islamic jurists that prohibited bai` dayn to a third

party for fear that the buyer will have to bear great risks (Hanafi Mazhab)

has some truth in it. This is especially true if there is an absence of supervision

and control. In this context, the buyer’s maslahah should be safeguarded

because he is the party that has to bear the risks of acquiring the debt

sale while making the sale contract. In the Malaysian context, the debt

securities instruments based on the principle of bai` dayn are regulated by

Bank Negara Malaysia and the Commission to safeguard the rights of the

parties involved in the contract. Therefore, the conditions set by the Maliki

Mazhab and the fears of risks by the Hanafi Mazhab can be overcome by

regulation and surveillance.

Thus, it can thus be concluded that although there are differences in opinions

on bai` dayn among the Hanafi and Maliki Mazhab, there is a convergence

point which states that bai` dayn can be used if there is a regulatory system

that protects the buyer’s maslahah in an economic system.

The fifth condition set by Maliki Mazhab relates to the exchange of ribawi

goods. In the context of the sale of securitised debt, the characteristics of

securities differentiate it from currency, and hence, it is not bound by the

conditions for exchanging goods.