Fiqh and Muamalat

BAI` `INAH

RESOLUTION

The SAC, at its 5th meeting on 29 January 1997, passed a resolution that
bai` `inah is a principle that is permissible in the Islamic capital market in
Malaysia.

INTRODUCTION

Bai` `inah refers to trading whereby the seller sells his assets to the buyer at
an agreed selling price to be paid by the buyer at a later date. After that, the
buyer immediately sells back the assets to the seller at a cash price, lower
than the agreed selling price.
The majority of Islamic jurists state that there are three forms of trading40
categorised as bai` `inah, whereby it can be concluded that all the assets sold
40 Forms of bai` `inah are as follows:
The seller sells a product to the buyer at a higher price on a deferred payment basis. After delivery
to the buyer, the seller buys back the product in cash at a much lower price.
A third party is involved, the seller sells a product that is delivered later on for, say RM200. After delivering
it to the buyer, the buyer then sells it to a third party for a lower price, say RM100. The third party then
resells it to the first party (original owner) for RM100. This means the original owner obtained RM100
from the trade.
A man wants to borrow, say RM100. The creditor refuses to lend using the qardh principle. Instead he
says: “I am not giving you qardh (loan) but I will sell you this shirt by deferred payment for RM100
although the market price is RM70.” This is to enable the buyer to sell it for RM70 at the market. When
the buyer agrees, the trade is transacted. What happens is the shirt owner makes a profit of RM30 from
the transaction because the buyer will pay him a deferred payment of RM100.21
come from the financier. The financier will sell a product to the buyer at an
agreed price to be paid later. The financier then immediately buys back the
asset at a cash price lower than the deferred selling price.41

ARGUMENTS THAT SUPPORT THE PERMISSIBILITY OF
BAI` INAH

Opinions of Past Islamic Jurists
Past Islamic jurists had differing views on determining the hukm on bai` `inah.
The following were their views:
The majority42 were of the opinion that bai` `inah was not permissible because
it was the zari’ah (way) or hilah (legal excuse) to legitimise riba (usury).
The Hanafi Mazhab was of the opinion that bai` `inah was permissible only if
it involves a third party, which acts as an intermediary between the seller
(creditor) and buyer (debtor).
The Maliki and Hanbali Mazhab, on the other hand, rejected bai` `inah and
considered it invalid. Their opinion was based on the principle of sadd zari’ah
that aims to prevent practices that can lead to forbidden acts such as, in this
case, riba.
The basis for the opinion of the majority of the Islamic jurists was the hadith
dialogue between Aishah and the slave Zaid bin al-Arqam which showed
the prohibition of bai` `inah.
43 They also held to the hadith of the Prophet
s.a.w in which he warned that those who practised bai` `inah would suffer
scorn.4422
Resolutions of the Securities Commission Shariah Advisory Council
The Syafi`i and Zahiri Mazhab viewed bai` `inah as permissible. A contract
was valued by what is disclosed and one’s niyyah (intention) was up to Allah
s.w.t. to judge. They criticised the hadith used by the majority of the Islamic
jurists as the basis for their argument, saying that it (the hadith) was weak
and therefore could not be used as the basis for the hukm.
45
From the study done on the opinions of past Islamic jurists on the issue of
bai` `inah, the SAC decided to accept the opinions of the Syafi`i and Zahiri
Mazhab in permitting bai` `inah. Therefore, it can be developed into a product
for the Islamic capital market in Malaysia.
When institutions or individuals are in need of capital for a specific purpose
they can utilise this method of payment, using their assets as mortgage. As
they still need the assets, this method allows them to liquidate without losing
the asset.