Issue and challenge of Bay al- Inah

The contract of bay al-inah generally involves a sale of an asset or property by a first
party for instant or spot payments followed by an immediate sale of the same asset by the second
party to the first party for a higher amount on deferred payments. The asset however, does not
give any useful for both parties either for consumption or derivation of usufruct (manfaah). This
transaction is used to bypass the prohibition of riba which had been stated in the Quran as the
main objective the contract involves two consenting parties both whom are willing to pay and
receive a contractual rate of return of a loan. The issues raised when both parties ignore the intent
of buying the property on which it is considered of resembling a loan. To illustrate, the contract
of purchasing the consumer good is for consumption. Similarly, a buyer who purchases an asset
will later sell it with an intention to make profit out of it. From these two examples, it can be
understood that the object sale (Mal Mutaqawim) must offer benefit (manfaah) to the buyer. Yet,
in the bay al-inah contract, this condition is not met by both parties.
Based on the issued that mentioned above, the observers in the Malaysian financial
systems are concern about the contract that allows the contracting parties to observe and execute
identical conditions set by any existing interest-based financial agreement. The implications of
bay al-inah contract is that the buyers will be subjected to similar legal measures as debtors who
enter into the contract. Moreover, in the event of banking crisis, one who defaults on the inah
sale will face similar consequences as most of loan defaulters. As bad debts, will reduce capital,
the same applies to Islamic banks and similar financial institutions that using bay al-inah
contract.
Bay al-inah trade is not found in any classic Islamic commercial law. However, bay
al-inah is a legal sale according to Shafiis, in which it says the intention or niyyah is not a
significant element in determining the validity of a contract. According to Shafiis point of view,
such sales are to be allowed because in the words of Imam Shafii, contracts are valid (sahih) by
the external evidence that they were properly concluded; the unlawful intention (niyyah or qasd)
of the parties is immaterial, it does not invalidate their act, unless expressed in that Act. Imam
Malik and other meditate jurists hold these transactions as invalid or void. They consider the
second transaction along with the first, and regard the grounds viable enough to suspect that the

purpose is to exchange an amount of money with a higher amount that is deferred, which forms a
prohibited riba. The same opinion is shared with Hanbali and Hanafi jurists.
Generally, those who oppose bay al-inah have does so primarily on the assumption that
there exists an agreement between the parties to carry out the two sales in that order, so that the
process results in one of the parties invariably ending up obtaining immediate cash against a
future obligation settling a higher amount. It seems that both parties are exaggerated and have no
commitment to the sale contract. The fact that both parties have no intention of using the asset as
any consumer does betrays one principle of contract in Islam, namely the objective of contract.
In the case of banking firms; the sale and resale contracts initiated by either the bank or the
customer saw no event by which either party has assumed risk-taking and value-addition in
rationalizing the profit taken. In both transactions, each party has made a prior guarantee that in
every sale there will exist an automatic resale. As such, neither is exposed to market risks and
liability arising from, say defective goods sold, if any. Bay al-inah is just a legal device (hilah)
that using Islamic commercial law (i.e. through trade and commerce) to obtain cash without
implicating riba; to make forbidden thing permissible. The object of sale comes into play by
virtue of a trick to get away with interest payments and receipts. Impliedly, bay al-inah
implicates back door for interests.
In Malaysia, their Sharia scholars legalized the practice of bay al-inah based on two
main justifications. First, they argue that the contract was not clearly prohibited either in Quran
and Sunnah. They do not accept the validity of the athar and the hadith which indicate the
prohibition of the contract. From their point of view, the athar of Aishah is considered as weak
evidence because of the unreliable narrator in its chain of narrators. Even if the chain of narrators
is accepted, the athar still regarded as invalid evident because its textual content appears to
contradict the general principle of Islamic law. This is because Aishah was reported to have
invalidated the reward of jihad that Zaid bin Arqam had involved together with the Prophet. In
the athar, she was reported saying that inform Zaid that his conduct has eliminated all his
rewards for participating in jihad with the Prophet if he does not repent. Such a statement could
not be taken into consideration since Aishah was not in capacity to do so.
Next, the Malaysian Sharia scholars argues that the practice of bay al-inah is considered
valid as the basis of maslahah in which refers to the need or interest of Muslims contemporary

society. The contract of bay al-inah is viewed as a key contract since it provides a mode of
problem solving. The contract can help society as well as the Islamic banks achieve the
respective goals. Though admitting bay al-inah resembles legal scheme, the contract is accepted
for the sake of majority interest.
These two methods which had been explained signify the root of methodology adopted
by the local Sharia scholars in assessing the legality of other Islamic banking products. The first
justification shows that the Sharia scholars practice the ijtihad concept. In solving fiqh problems
of the Islamic banking, they will directly refer to the primary and secondary source of Islamic
law. In the primary source of Islamic law, it is consisting of Quran and Sunnah, while the
secondary source of Islamic law consists of ijma (consensus), qiyas (analogy), istihsan (legal
preferences), and urf(custom). Furthermore, Sharia scholars also study the prominent classical
jurist thoughts but then again will not blindly restrict to them.