ISSUES IN BAY’ AL-‘INAH AND BAY’ AL-DAYN AND PROPOSAL FOR OTHER CONCEPTS AVAILABLE IN ISLAMIC COMMERCIAL LAW TO BE EMPLOYED AS ALTERNATIVES IN CONTEMPORARY ISLAMIC FINANCE

ABSTRACT

The application of bay’ al-‘inah (sale and repurchase back) and bay’ al-dayn(sale of debts) is making the Islamic financial industry lost its identity. The issues are serious to the Islamic financial market movement, as it is not about minor details of religious practices (furuq) but sadly dealing with the fundamental (usul) of religion. This time it is riba or usury. Its application in Islamic financial market is partly caused by the lack of knowledge in riba that is both definite and decisive. For this reason, it is critical to put things straight and get to the basics again. This project paper endeavours to explore the critical issues in regard to both instruments and other concepts available in Islamic commercial law that can be employed as alternatives.

The application of Wadiah and Qardh principles in Islamic deposit accounts and the Shariah implications for the use of each of the respective principles

Wadiah is defined as “setting up an agency contract for the purpose of protecting one’s wealth” by Maliki school of law. Other school of thoughts basically agrees to the main element of definitions, which is, the delegation to another party of the function of protecting one’s wealth. Wadiah is basically a benevolent act by the keeper and the nature of wadiah is amanah (a trust). The basic concept of wadiah yad al-amanah (safe custody based on trust) is that the trustee will only be responsible for damages to the assets or property entrusted in case of negligence and the trustee cannot mix the assets or property with his or other people’s properties. 

The criteria of the debt that can be the subject matter of debt transfer (hiwalah) and debt sale (bai’al-dayn) in Islamic commercial law

Hiwalah or hawalah is an effective mode for the security of debts. The word hiwalah is derived from tahwil, which conveys the meaning of shifting a thing from one place to another place. In the language of law, it means “shifting or assignment of debt from the liability of the original debtor to the liability of another person”. It can also be defined as substitution of one obligor for another with the agreement of the creditor.

The Islamic commercial law principles and rules that govern the sales on credit (buyu’al-Aajal) and the discussion of whether “Da’ wa ta’ajjal” which is known in Islamic legal literatures as “give discount and receive sooner” can be practiced by parties in Islamic transactions in the context of rebate and debt-discounting

Buyu’al-Aajal also known as Bai’ Bithaman Ajil (BBA) in Malaysia, is a sale contract in which the payment of the price is deferred and payable at a certain particular time in the future. It is a trading at cost plus specified mark-up. It is basically a variation of murabahah (cost plus) whereby the deferred payments would be in the form of instalments whereas for murabahah, the deferred payment would be paid lump sum in the specific time in the future. In general, the majority of Islamic jurists are unanimous in allowing the activity of BBA. 

The Differences Between Contract of Istisna’ and Contract of Salam

Salam (spot payment for deferred delivery) and istisna’ (staggered payments for deferred delivery) are the sales of a special nature. Salam is a sale whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advanced price fully paid on the spot. The wisdom behind permissibility of salam due to the needs of the seller. If the price is not paid to him in full, the basic purpose of the transaction will be defeated. On top of that, the quantity of the commodity must be agreed upon in unequivocal terms plus exact date and place of delivery must be specified in the contract.

How muqassah or set-off is affected in the settlement of financial obligations in Islamic commercial transactions?

Muqassah is generally a clearance of obligation and involves setting off debts of the debtor and creditor who is indebted to each other. The debts set off must be identical in all aspects or when the debt is of different value, the smaller debt is reduced from the larger debt. The legality of muqassah can be divided into three opinions. First, one group of Muslim jurists opined the muqassah is a approved method for the settlement of debts. The subject matter doesn’t come under purview of sale of debt (bai’ al-dayn).