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

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  • Topic: Islamic banking, Sharia, Riba
  • Pages : 11 (4010 words )
  • Download(s) : 418
  • Published : November 27, 2012
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Abstract
The rising of the Islamic banking 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 based on the avoidance of the element of Riba which is widely and fundamentally practiced in the conventional banking industry. The attempt by the Islamic banking and finance industry had so far been successful and it could be witnessed by the launching of wide range of Shariah compliant financial products and transaction. 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 Bay al-Inah or the practice of sale and buy-back, Tawarruq which quite commonly used in Malaysia, have been criticized strongly especially the voices from the Middle East. The other issue that will be discussed briefly in this project paper is the applicability of Wa’d , the unilateral promise.

Key terms of the research

1 Bay al-Inah 2 Tawarruq 3 Wa’d 4 Al Ijarah al Muntahiya Bittamleek 5 Statutory Declaration

Objectives of the research:
Identify the issues of the Bay al-Inah , Tawarruq and Wa’d encountered by the Islamic banking industry and proposal of an alternative solution to it.

Table of content
GENERAL INTRODUCTION
SHARIAH ISSUE ONE: Bay al-Inah
The Concept
Current Practise of the Industry
Legitimacy of the Bay al-Inah
Alternative Solution
SHARIAH ISSUE TWO: Tawarruq
The Concept
Current Practise of the Industry
Legitimacy of the Tawarruq
Alternative Solution
SHARIAH ISSUE THREE: Wa’d
The Concept
Legitimacy of Wa’d
Solution

CONCLUSION
REFERENCES

GENERAL INTRODUCTION
The rising of the Islamic banking 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 based on the avoidance of the element of Riba which is widely and fundamentally practiced in the conventional banking industry. The attempt by the Islamic banking and finance industry had so far been successful and it could be witnessed by the launching of wide range of Shariah compliant financial products and transaction. 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 Bay al-Inah or the practice of sale and buy-back, Tawarruq which quite commonly used in Malaysia, have been criticized strongly especially the voices from the Middle East. The other issue that will be discussed briefly in this project paper is the applicability of Wa’d , the unilateral promise. SHARIAH ISSUE ONE: Bay al-Inah

THE CONCEPT
Linguistically, the term “Inah” carries the meaning of salaf, or contracting a loan. It is used in this meaning to refer to purchasing on credit. It could also be a derivative of the term “ayn”, which also means present assets, that is cash. Thus, it denotes a situation whereby one purchases an asset for its subsequent sale on cash that is needed by him. Bay al-Inah is generally defined as an arrangement whereby a seller sells to the buyer some object for cash deferred payment; then, simultaneously, the seller immediately buys back the same object for a lesser amount than the deferred price in cash. Thus, the transaction amounts to a loan whereby the difference between the two prices represents the interest .

Modus Operandi:

The above diagram shows the modus operandi of the Bay al-Inah that has been practiced by the Islamic banks in Malaysia so far. In this transaction, the bank sells its asset to the customer who is in need of liquidity on credit. The price under the sale includes the bank’s profit margin charged on the customer. Subsequently, the bank buys back the...
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