Shariah Issues in Islamic Banking : Bay Al-Inah, Tawarruq and Wa’d

pilfer The rising of the Moslem shoreing and finance persistence is a bet response to the forbiddengrowth aw beness amongst Muslim regarding the take aim of election fiscal products and go that is complied with the t to each atomic number 53ing of Islam. To be specific on the wholey, the consume is g just about on the scheme of the element of Riba which is largely and fundamentally sound in the received canting fabrication. The attempt by the Moslem fixing and finance industry had so far been in(predicate) and it could be witnessed by the launching of wide range of shariah law tractable financial products and achievement.However, n one of us can procure that the shariah law compliant products approved atomic number 18 fault- bare absolutely. Among the comes of the industry, the practice of mouth al-Inah or the practice of barter and buy- back, Tawarruq which kinda commonly employ in Malaysia, get down been criticized strongly particularly the voic es from the Middle East. The diametrical issue that entrust be discussed concisely in this interpret paper is the pertinency of Wad , the one-party holler. bring up basis of the research 1 true laurel al-Inah 2 Tawarruq 3 Wad 4 Al Ijarah al Muntahiya Bittamleek 5 Statutory DeclarationObjectives of the research Identify the issues of the utter al-Inah , Tawarruq and Wad encountered by the Muslim jargoning industry and proposal of an alternating(a) theme to it. Table of content GENERAL cornerstone SHARIAH douse mavin utter al-Inah The construct Current Practise of the manufacturing legitimacy of the verbalize al-Inah Alternative final go SHARIAH ISSUE twain Tawarruq The pattern Current Practise of the Industry Legitimacy of the Tawarruq Alternative antecedent SHARIAH ISSUE cardinal Wad The conceit Legitimacy of Wad Solution coda REFERENCES GENERAL INTRODUCTIONThe rising of the Moslem depose buildinging and finance industry is a direct response to the growing awareness amongst Muslim regarding the need of alternative financial products and services that is complied with the teaching of Islam. To be specifically, the demand is establish on the avoidance of the element of Riba which is widely and fundamentally full in the accomplished banking industry. The attempt by the Moslem banking and finance industry had so far been successful and it could be witnessed by the launching of wide range of sharia law compliant financial products and exploit.However, none of us can guarantee that the Shariah compliant products approved are fault-free absolutely. Among the practices of the industry, the practice of quest al-Inah or the practice of cut-rate barter and buy-back, Tawarruq which quite commonly utilise in Malaysia, sacrifice been criticized strongly especially the voices from the Middle East. The other issue that pull up stakes be discussed briefly in this project paper is the applicability of Wad , the biased foretell. SHARIAH ISSUE ONE Bay al-Inah THE CONCEPTLinguistically, the term Inah carries the subject matter of salaf, or wringing a loan. It is used in this meaning to de none to purchasing on credit. It could excessively be a divers(prenominal)ial coefficient of the term ayn, which too means displaceue additions, that is capital. Thus, it de nones a home whereby one purchases an plus for its subsequent exchange on hard specie that is needed by him. Bay al-Inah is for the most part defined as an arrangement whereby a vender sells to the buyer some fair game for interchange deferred salary accordingly, simultaneously, the seller mmediately buys back the same object for a lesser inwardness than the deferred charge in currency. Thus, the surgical operation amounts to a loan whereby the difference amid the devil harms represents the have-to doe with . Modus Operandi The above draw shows the modus operandi of the Bay al-Inah that has been practiced by the Muslim bank s in Malaysia so far. In this transaction, the bank sells its addition to the customer who is in need of fluidity on credit. The harm infra the trade includes the banks eviscerate headway margin charged on the customer.Subsequently, the bank buys back the asset from the customer for cash wages. Eventually, the customer gets the cash payment, and pay the bank the deferred cost over a incumbency by periodic instalments which constitutes the same issuing and result of a loan . modern PRACTICE IN THE diligence In Malaysia, the practice of Inah whitethorn take 2 names, depending on the overlord owner of the asset. If the asset to be used belongs to the customer, the melt off is know as Bay Bithaman Ajil (BBA). If the asset belongs to the bank, so the switch off will be named as Bay al-Inah. ven though the legal documents whitethorn differ from one financing to the a nonher, moreover the common documentation will lie in of holding Purchase Agreement (PPA) and Property Sa le Agreement (PSA). Besides, the Master speediness Agreement will also be prepared to encapsulate and detail out all necessary ingredients of the facility granted. These documents reveals that though the two sale contracts are penalise separately without making one of them conditional to the other, the master facility Agreement has clearly indicated the intention of the parties in entering into these two consecutive sale contracts.LEGITIMACY OF BAY AL-INAH The principal(prenominal) proponents of Bay al-Inah is the Shafii school. The Shafii jurists oblige illustrate their permissibility in a situation whereby a mortal sells a trade good on cash or credit terms and detention over possession, and the parties separate with mutual cheer about the contract, it is permissible for him to purchase it from the preceding(prenominal) buyer for an amount compare to, higher, or frown than the former monetary value, of the same specie as sooner or different, paying cash or oncredit, after receiving payment for the previous sale or before it.On this basis, according to the authoritative position upheld by the Shafii scholars, the two independent contracts, jointly referres to as Inah are held valid, precisely reprehensible. This precept hitherto applied when one of the two parties is cognize for the practice of Inah, as according to the principle upheld by the Shafii school, the intention of the parties, even when it happens to be unacceptable, does not result in the hamperity of the contract, unless much(prenominal) intention is given contemplation in the contractual text.As a result, it will be the case whereby even the situation indicates the parties intention to carry out a randomness sale, this will not command the invalidity of the contract. In a candid word, the Shafii school considered the intention of the parties only interpreted into account when the invalid intention is explicitly written in the contract . In the other side, the Maliki and H anbali schools opined that the contract of Bay al-Inah is not valid.The Maliki jurists establish categorized the influence in disbelief under buyu al-ajal, which apprehensions on the parole of various form of two sale contract being taking send out in sequence involving com put ination of different prices and periods. They have described 9 practical chance variables, the permissibility of two of which have been subjects of different opinions, age there is unanimity pertaining to the rest. It was express that when one sells a commodity on a deferred payment and thereafter purchases it again, the price in the second transaction could be deferred for a period adjoin to the prototypal, mindlesser than the premiere, or bimestrial.In each of these situations, the price of the second transaction could be equal to that of the first, lower than, or higher. The types where jurists have differed are -where the price of the second transaction is lower than that of the first, and is on a cash basis and -where the price of the second transaction is higher than that of the first and is deferred for a longer period. Imam Maliki and other jurists regard these formats invalid.They considered the second transaction along with the first, and regard the campaign viable enough to suspect that the suggest is to exchange an amount of money with a higher amount that is deferred, which substantially constitutes the require Riba. Hence, the transaction acts as a spiritualist for attaining what is prohi prick upd and it is invalid inherently. The Hanbali school hold that the Bay al-Inah is not valid as the difference of the selling price of a commodity with profit margin and the lesser buying price transaction reply as an avenue leading to Riba. ane could try out to legalise the sale of one super acid against one thousand five ampere-second by involving an asset in this manner. But, it was also mentioned that if the price of the second transaction is equal to that or higher than the first transaction, wherefore it is permissible since no margin equal to the nature of Riba is involved. The above ruling applies where the commodity had not diminished in whatever manner after its sale. If it had diminished, it could be purchased at whatever price, as any fall down in the price could be against the privation of value in the asset, and not for the mark of Riba.If the purchase is against another asset, or the first sale was against an asset and the commodity is then repurchased for cash, it is permissible delinquent to the fact that Riba is not applicable in the midst of money and commodities. If the first sale is on cash, and the second sale takes place finished another currency, it is permissible. Basically, the aim of validity in contract is establish on the parties motive and validity in sale under consideration, the motive of the parties is irregular will put the sale invalid aas it constitutes a legal device to restrain a loan with interest which should be averted.Imam Hanifah from the Hanafi school opined that if the two prices are much(prenominal) that Riba could be applicable such as cash and gold, and are identical in type, for face gold, it is not allowed to repurchase the sell commodity except at a price equal to the first, without any join on or decrease in price. If the price of the first sale was such that Riba is not applicable, such as commodities, he may repurchase the sold commodity for a price higher than the initial price or lower.If the two prices belong to different types where Riba is applicable such as gold and gold, disparity between them although analogically permissible, only is sinful based on Istishsan. The majority protest to Bay al-Inah were supported by a number of hadith attributed to the vaticinator and his companions. One of the example was the Hadith that the prophet warned those who practiced Bay al-Inah with calamity (bala) or disparagement (dhill). Another example w as a physical composition on a Bay al-Inah transaction that had been brought to the knowledge of Aishah r. a. hich read Aliyah binti Ayfa tell I entered Aishahs place with Umm Walad of Zaid bin Arqam and his wife. thence, Umm Walad of Zaid bin Arqam said I had sold a slave to Zaid bin Arqam for 800 dirhams on deferred payment. whence I bought him back from Zaid for 600 dirhams cash. Aishah replied Very self-aggrandising is what you sold and bought. Convey to Zaid that he had strike down his struggle with the Prophet, unless he repented. ALTERNATIVE firmness Al Ijarah al Muntahiya Bittamleek Under this structure, the bank ap organizes customer to be its agent to catch purchases from the seller.The customer then takes the purchased asset on lease from the bank, for rental payments. At the end of the lease period, the asset will be transferred to the customer via a sale (normally the price of the last rental payment) or as a gift. SHARIAH ISSUE TWO Tawarruq THE CONCEPT Tawarruq has been generally used to refer to an arrangement whereby a someone who was in need of cash bought some goods for deferred payment. Then he sold the goods to another party other than the original seller for payment of cash with a lower price . Tawarruq is considered an alteration based on the Bay al-Inah.The distinction between the Bay al-Inah and Tawarruq is that the person who requires liquidity purchases an asset from a seller on credit, thereafter sells it on cash basis at a price lower than the purchase price to the seller in the case of Bay al-Inah. However, Tawarruq involves a third party whereby the one who requires liquidity purchase an asset from someone on credit, and thereafter sells it, usually for a lower price, to a person other than the original seller. So, the structure does not give a direct indication of Hilah solely to covert the Riba.Modus Operandi CURRENT PRACTICE IN THE INDUSTRY The concept of Tawarruq contract is popular among the modern-day Islamic fin ancial system. In fact, the short term financing which various adaptions of Murabaha was used as the carrelard mode by the majority of Islamic banks in the industry is in deed structurally designed based on this Tawarruq principle. However, there are some variation on the frank structure of Tawarruq due to the reason the Islamic banks encounter objections from the classical scholars with the similar stand and analogy as the way they enounced the Bay al-Inah. One of the most popular variation is the Tawarruq Masrafiy. In this mode of Tawarruq Masrafiy, the Islamic bank is acting as a stainless intermediary and does not possess the asset that could be readily brought into the Tawarruq financing process and therefore is in need of liaising with a trader/ broker, usually an external party, for the manipulation of facilitating the Tawarruq contract. Similarly, the disposal of such asset by the customer of the facility needs to be further simplified by the mediation of an agent.Henc e, this Tawarruq Masrafiy could be more complex in its structure . Modus Operandi LEGITIMACY OF TAWARRUQ Most of the scholars make their end on the validity of Tawarruq based on the same authorities and analogy of the validity of the Bay al-Inah. The scholars who have upheld the permissibility of Tawarruq have fundamentally relied on the general intension of the verse permitting sale while prohibiting usury. Tawarruq as a type of sale, is included inwardly this context of permissibility due to the absence of any Quranic verse or Hadith that rules it unlawful.The proponents somemore cited the Hadith reported by the Companion Abu utter al-Khudri which narrates that a man from the region of Khaybar who had been assure the upkeep of a plantation came to the Prophet with some dates of good quality. When the Prophet asked him whether all dates of Khaybar were of similar quality, the man replied in the invalidating and added that they used to obtain a pecker of better dates against t wo measures of ordinary dates, and two measures against three measures.The Prophet forbade him from doing so and order him to sell the low quality dates against silver coins, and then purchase better dates against silver . This Hadith indicates the permissibility of using the described method acting for avoiding involvement in Riba overtly or covertly the medium of a sale is employed, which fulfils all conditions and prerequisites of sales, free of factors that result in its invalidity. The intention of procuring dates of better quality as the end result of the transaction has not been considered to invalidate the material structure.Hence, this shows that the legality og the sale transaction where different manipulations are think when the medium utilized is acceptable and free of Riba explicitly and implicitly. As a conclusion for the proponents, it is permissible to attain liquidity done a medium of sale such as the case of Tawarruq when there is a need for doing so. On the ot her hand, the denouncers of the Tawarruq have chief(prenominal)ly concentrated on the boldness of intention.They argues that the intention here is to procure money, which could tentamount to the sale of money against a different amount of money, while the asset serves only as a medium, the acquisition of which is not in the first place intended. Therefore the structure strongly connotes the possibility of a legal stratagem adopted for this purpose. therefore a major reason for the comment of tawarruq is that it appears to be a Hilah adopted for progression of what could otherwise be Riba. It is money against money, with a piece of silk cloth pushed in between. as the stand of Ibn Abbas when he was asked on the question regarding the permissibility issue. One of the frequent cited authorities by these denouncers is the Hadith which reported that The Prophet has said A time is certainly approaching to mankind when pile will bite each other and a lavish man will hold spry wh at he has in his possession though he has not commanded for that.Allah the Almighty said (and do not forget freedom between yourselves), and then those who are oblige to contract sales while the Prophet forbade forced contracts, one which involves some hesitation and sales of fruits before they are ripe. In a simple word, the end result of the whole transaction is their main concern in determining the legality of a particular structure of transaction. Hence, the Tawarruq is deemed nothing but equally to the practice of Riba as the purpose of Tawarruq is to obtain instant cash for a higher consideration later.In the OIC Islamic Fiqh honorary society in its 15th Meeting, it was decided that the Tawarruq is allowed. However, in its later meeting, ehich is the 17th Meeeting, the OIC Islamic Fiqh academy clarified its stand on Tawarruq by stating that the Tawarruq Masrafiy that largely adopted by the Islamic financial institutions is disallowed. The reasoning behind the reprimand is that the Tawarruq Masrafiy practiced by the Islamic banks is in the form of organized Tawarruq or pre-planned Tawarruq quite an than ad hoc Tawarruq which cuasing it almost synthetic and off-key as Bay al-Inah in essence.ALTERNATIVE ancestor Since the problem of Tawarruq shares the similar features of the Bay al-Inah, the alternative dissolver could be the same as discussed in the former part. Hence the Al Ijarah al Muntahiya Bittamleek could be the substitution for both(prenominal) Bay al-Inah and Tawarruq as a solution for avoiding the Riba element concerned. SHARIAH ISSUE THREE Wad THE CONCEPT The 3-letter start WA-A-D (wad), corresponding to the verb Waada, indicates a counter but can also be used for a threat.The technical exposition of Wad ( arrangement) is based upon the linguistic definition, affirming the positive meaning and excluding the negative meaning (threat). A tell has to be for something Maruf (recognized as good by the Shariah and sound intellect). If a look to is to do something evil or wrong, then it is not obligatory to fulfill it and the time in which a promise is to be carry through is the future, not the time at which the promise is made. The problem incurred in application of Wad is that some banks claim that their unilateral promise (Wad) is not fertilisation.However if the customer breaks his/ her unilateral promise, then the bank charges the customer for the injury incurred as a result of not fulfilling his unilateral promise . LEGITIMACY OF WAD The resolution 1409H of the Islamic Fiqh honorary society has decided that a unilateral promise (Wad) which is issued unilaterally by either systematiser or the client, is by religion fertilisation upon the promisor except where otherwise justified. It is also judicially spinal column if it is made item upon a reason and if the unilateral promise (Wad) entails a cost for the unilateral promise (Wad).Insuch cases, the consequences of the binding character of the unilateral promise (Wad) are determined by either the fulfillment of the unilateral promise (Wad) or by reparation for losses genuinely incurred as a result of the non-fulfillment of the unilateral promise (Wad) without justification. According to the resolution of the Islamic Fiqh Academy that prohibits the Wad to be binding on both parties but allowed it to be so on one of them, it is instead too arbitrarily and but acceptable. It should be the other way round whereby one should treat the Wad either binding on both parties or optional for both parties.Making it binding upon one to the exclusion of the other, is illogical and denotes a misinterpretation of jurisprudential principles. In a summary, it is admissible for Wad as an alternative to a invalid contract to be binding because Wad is analogous to a contract as well. Any suggestion for making it binding upon both or either parties explicitly or impliedly with any other Hilah is not founded on any legitimate basis. termination The Wa d is at its better(p) to be excluded in the practice of the Islamic banking legal documentation system due to the uncertainty and arbitrariness.However, the characteristic of the Wad might be implemented through a contemporary form of statutory result in declaring certain sub-condition for the contract between the bank and customer kinda of the main terms and conditions of the contract. For example, if the real landed estate was brought on the purpose for self-staying purpose or else of profit generation, then the statutory declaration may be made in declaring this. This might not be the main issue in the construction of the banks facility agreement which moldiness be included within the terms but can be title in the way of declaration.For the consideration and/or performance that is much heavy which will affect both parties essentially, of course mustiness be included in the facility documents entered by the parties and there is no point to make it in a or else uncertainty form of Wad. CONCLUSION The Al Ghazali once said that the really objective of the Shariah is to promote the populace assistance of the people and whatever ensures the safeguarding of peoples faith, life, intellect, posterity and wealth serves the public interest and is desirable.In the issue of Wad, it is certainly not the best form of contracting to the Islamic banking industry that put much demand on certainty, hence it would be rather fully utilize the bilateral contract on main consideration/performance or only using the statutory declaration on the least important issue such as the example given since the ambiguity part of the Wad is not serving the public interest for all. From the point of Shariah, the Bay al-Inah and Tawarruq is not really serving the welfare of people and it has similar oppressive character of Riba.The banks are relieve getting the pre-determined rate of evanesce and the application of Bay al-Inah or in other name BBA and Tawarruq is mostly cosmetic. If the Islamic banks label their hamburger as a MECCA burger, as long as it still has the same ingredients as a McDonalds burger, is it really any different in substance? It is also the case between the Bay al-Inah, Tawarruq with inherent Riba element and the conventional interest-based loan.References A Book Dr. Muhammad Saleem (2005), Islamic Banking- posting and Arguments on Riba (interest or usury), Islamic Banking Practices, move Capital and Enlightenment, published by Xlibris Corporation, p26. professor Rafic Yunus Al-Masri (2002), The cover song Unilateral Promise (Wad) in Islamic Banking Operations Is it Permissible for a Unilateral Promise (Wad) to be Binding as an Alternative to a proscribe Contract? , J.KAU Islamic Econ, Vol 15 pg29-33 Dr. Mohamad Akram Laldin, The Concept of Promise and Bilateral Promise in Financial Contracts A Fiqhi Perspective, The multinational Shariah Research Academy (ISRA), pg 3-30 Muhammad Abd al Ghaffar, al Tatbiqat al Masrafiyyah li al Ta warruq, pg 16 SH1003 Shariah Rules in Financial proceeding of CIFP Module 2012, published by the International Centre for Education in Islamic Finance (INCEIF), pg 97- 129Dr. Mohd Daud Bakar and Dr. Engku Rabiah Adawiah Engku Ali (2008), Essential Readings In Islamic Finance, CERT Publications Sdn Bhd pg 133-165 http//www. isra. my/media-centre/downloads/finish/7-islamic-banking/273-the-concept-of-promise-and-bilateral-promise-in-financial-contracts-a-fiqhi-perspective-english/0. html retrieved 17/11/2012 20. 00pm http//dahabshilbank. com/cms. php? id=ijarah_en&038 retrieved 16/11/2012 16. 00pm