Bay Al inah and Tawarruq

1. Bay’ Al-Inah & Tawarruq
Presentation by
Nik Nainunis bt Abdul Ghani
Nurul Nadia bt Abdul Rashid
Nur Shahidatul Akmar bt Mahyedin
Nor Hafizah bt Samanal
Master in Islamic Banking and Finance
IFE 730 Islamic Banking Management & Operation

2. Bay’al-inah
Definition
Modus Operandi
Evidences Permissibility
Evidences Prohibit
Condition
Application
Issues

3. *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 installment
basis.
Razli Ramli, Mohammad Khairi Saat, Haryani Aminuddin

4. Modus Operandi
There are two contracts involved :
i) Contract of Sale; and
ii) Contract of Purchase.

5. *RM70 000 = Financing amount + profit margin = Bank’s selling price
Sell asset @ RM 70 000*
Pays on deferred term
1st contract : Bank sells certain asset to a customer on deferred term
2nd Contact : Bank subsequently purchases the asset back from the customer on
cash basis
Purchase Asset @ RM 50 000**
Pays RM 50 000 by cash
**RM50 000 = Financing amount = amount of cash needed by the customer = bank’s
purchase price

6. Permissibility of Bay’ Al-Inah
Different views of Muslim scholar in Bay’ Al-Inah
Mazhab Syafi’I supported by Ibn
Hazm and shariah Advisory
Council of Bank Negara Malaysia
Majority of the Scholar including
Hanafi, Maliki and Hambali
Sale Is
permissible
Sale is
forbidden
Many Muslim jurist consider it is prohibited because it is open door to riba
(back door riba or hilah to riba)

7. 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”.
(Al-Shafi’i, Al-Umm, Volume 3, page 90)

8. *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
the first seller), either based on cash or debt
method, lower or higher pricing.

9. 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 : Permissibility

10. 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.
*Evidence : Prohibited

11. *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.
*Evidence : Prohibited

12. *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

13. *application
Application
Working
capital
financing
Islamic
Credit Card
Personal
Financing
BBA
Financing

14. *APPLICATION

15. *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

16. tawarruq
Definition
Modus Operandi
Evidences Permissibility
Evidences Prohibit
Condition
Application
Issues

17. *definition
*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)

18. *FORM OF TAWARRUQ
ORGANIZECLASSIC

20. *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.

21. Commodity
seller
(muwarriq)
Commodity
buyer
Customer
(mutawarriq)
BANK
1. Sell for
immediate
payment
RM 100 mil
2. Sell for
deferred
payment RM
110 mil
3. Sell for
immediate
payment
Sale:RM 100
mil
Cost:RM 110
mil
Sources 3: Money, Islamic Bank and Real Economy: 2010

23. *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)

24. *MODUS OPERANDI
BROKER A
BROKER B
1
654
3
2
Sources 4: Badri & Isaac:
2014

25. PERMISSIBILITY
*

26. *First was based on the Qiyas (analogy) which the
contract is similar to other sales and purchase
contract in order to transfer the ownership.
(Khalid, 2011)
*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)

27. IMPERMISSIBILITY

28. *Imam Ibn Taimiyyah from Hanbalites schools
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)

29. *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.
(Shariah Standard No.30. Monetization
(Tawarruq), 4/1, Controls on Monetization
Transactions, Pg. 525.) (Khan, 2009)

30. *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.
Source: AAOIFI Shari’ah Standards for Islamic Financial Institutions (2010)

31. *CONDITIONs
*AAOIFI in its Parameters on Tawarruq transactions
in its Shariah Standards No 30 outlines to ensure
the genuine application of Tawarruq.
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.
Source: AAOIFI Shari’ah Standards for Islamic Financial Institutions (2010)

32. *APPLICATION
Products
Deposit
product
Financing
product
Sukuk
Ijarah
Bursa
Suq’ Al-
Sila’

33. *DEPOSIT PRODUCT
TRADER A
(muwarriq)
TRADER B
BANK
(mutawarriq)
CUSTOMER
5) Sell on cash
basis
2) Cash basis
1) Deposit
money
3) Transfer
ownership
4) Buy on deferred

34. *Bursa suq al-sila
Source: Bursa Malaysia

35. *ISSUES
• Good commodity
• Something has valueCommodity
• Object must exist
• Non-delivery
Possession
and delivery
• The bank plays as financial
intermediaries, but at the same time be
an agent on behalf of customer.
Agency

36. *

37. *differences
ELEMENT Bay Al-inah & Tawarruq
Objective To obtain cash or liquidity
*SIMILARITIES
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
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.

38. *differences
Elements Bay al-inah Tawarruq
Contracting parties Involve 2 parties Involves 3 parties or
more
Applications Personal Financing
Working Capital
Financing
BBA Financing
Islamic Credit Card
Personal financing
Deposit financing
Sukuk
Bursa suq Al- Sila’
Muslim scholars Majority of them not
approve
Majority of them
approve
Asset The asset return to the
first seller
The asset does not
return to the first sellers
Types No specified Classical Tawaruq and
Organized Tawaruq

39. *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

40. *references
* Badri, M. B. (2014, March). Murabahah Sukuk A Brief Snapshot. p. 2.
* BNM, I. B. (2007). Resolution of Shariah Advisory Council of BNM. Retrieved April 29, 2015, from
www.bnm.gov.my
* Dusuki, A. P. (2010). Can Bursa Malaysia's Suq Al Sila'(Commodity Murabahah House) Resolve The
Controversy Over Tawarruq.
* Hadad, D. A. (2010). Tawarruq Its Essece and Its Types:Mainstream Tawarruq and Organize Tawarruq.
Dubai.
* Hassan, M., & Lewis, M. K. (2007). Handbook of Islamic Banking. UK: Edward Elgar Publishing Limited.
* Islamic Bank of Brunei. (2015). Retrieved April 29, 2015, from www.bibd.com.bn
* Ismon, N. Y. (2011). Legality of Tawarruq in Islamic finance. Tazkia Islamic Finance and Business
review volume 7.1 .
* Khalid, M. (2011). Retrieved April 18, 2015, from Academia: http://academia.com
* Khan, D. S. (2009, September 4). Why Tawarruq Needs To Go;AAOIFI and OIC Fiqh Academy:
Divergence or Agreement. Retrieved April 29, 2015, from Islamic finance news:
www.islamicfinancenews.com
* Munajjid, S. M. (n.d.). Rulings On Tawarruq Sales. Retrieved April 28, 2015, from Islamqa:
islamqa.info
* Standard Chartered Saadiq. (2015). Retrieved April 29, 2015, from Standard Chartered Saadiq:
https:www.sc.com/ae/islamic/saadiq-personal-finance.html#
* Tijani, I. M. (2013, September). Fatwa In Islamic Finance. A Snapshot of Tawarruq in Contemporary
Islamic Finance .
* Zuberi, H. (2009, May 14). OIC Fiqh Academy Ruled Organized Tawarruq Impermissible. Retrieved
April 29, 2015, from Islamic Finance Resources: ifresources.com