Bai Bithaman Ajil

Topics: Usury, Debt, Interest rate Pages: 4 (1213 words) Published: April 11, 2013
FAQ on Bai’ Bithaman Ajil (BBA) Financing

Frequently asked questions about BBA house financing

What is Al Bai’ Bithaman Ajil (BBA) house financing?

THE BBA house financing is an Islamic house financing
facility, which is based on the Sharia concept of Al Bai’ Bithaman Ajil (BBA). It is a contract of deferred payment sale i.e. the sale of goods on deferred payment basis at an agreed selling price, which includes a profit margin agreed by both parties. Profit in this context is justified since it is derived from the buying and selling transaction as opposed to interests accruing from the principal lent out.

What are the main characteristics of a BBA house financing?

All the components to determine the selling price have to be fixed because the selling price has to be fixed at the time the contract is made. Hence, the profit rate for the BBA financing is fixed throughout the period of financing.

What are the mechanics of the BBA house financing?
1. Customer identifies the asset to be purchased.
2. Bank determines the requirements of the customer, in relation to the financing period and nature of repayment. 3. Bank purchases the assets concerned.
4. Bank subsequently sells the relevant asset/property to the customer at an agreed price, which consist of: - Actual cost of the asset to the bank i.e. financing amount; bank’s profit margin. - Customer is to settle the payment by installment payment through out the financing /period. What are the differences between BBA house financing and an ordinary conventional housing loan? An ordinary conventional housing loan is given on the basis of debtor/creditor relationship. Whereby, the amount of loan is being charged interest, normally quoted at a certain percentage above the base lending rate (BLR) over the loan period, repayable in periodic installment. The BLR will fluctuate up or down and it will affect the total loan cost. Simultaneously, arrears in conventional loans are normally...
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