Shariah fundamentals

Bay al-inah (sale and buy-back)

Selling an asset on deferred terms and buying it back from the same buyer for a lower spot price. Standard setters disagree on it.

Bay al-inah is a pair of sales in which a party sells an asset for a deferred price and buys it back from the same buyer for a lower cash price, so the buyer ends up with cash and a larger debt. AAOIFI's standard on tawarruq distinguishes it from tawarruq, where the asset is sold to a third party, and describes inah as strictly prohibited because it is a device for riba. Bank Negara Malaysia's Shariah Advisory Council, in resolutions compiled in its second edition, accepted bay al-inah subject to conditions. Products built on it therefore depend on which authority governs them.

Sources

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

Related terms

TawarruqBuying an asset on deferred payment and selling it to a third party for cash, to raise liquidity. Its organised form is contested.RibaAn increase over principal that Shariah prohibits: extra stipulated on a loan, or an unequal exchange of certain like-for-like goods.MurabahaA sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.Commodity murabahaInterbank and treasury deals in which commodities are bought and sold on deferred payment to place or raise short-term funds.