Bay' al-'Inah
Bay' al-'inah is a sale and buy-back: a person sells an asset on deferred payment terms and immediately buys it back from the same buyer for a lower cash price, leaving the buyer with cash now and a larger debt later.
Also called: bai al-inah · bay al-inah · inah · sale and buyback
The asset goes out and comes straight back, so the only lasting effect is that one party has received cash and owes a bigger sum later. That is why most classical jurists rejected bay' al-'inah as a device to reach the economic result of an interest-bearing loan. A minority view, associated with the Shafi'i school, looked at the validity of each sale on its face.
It was used for many years in Malaysian personal and card finance, where it is now permitted only within tighter conditions, and has largely given way to tawarruq elsewhere. It is the standard example in the debate over form versus substance in Islamic finance: whether a product is judged by the validity of each contract or by what the sequence of contracts achieves.
In practice
Bay' al-'inah is rejected by most scholars outside a limited set of jurisdictions. Its continued use in one market does not make it acceptable to institutions whose Sharia boards follow the majority view.
Example
A bank sells a customer an asset for US$11,000 payable in a year, then immediately buys it back for US$10,000 in cash. The customer leaves with US$10,000 and owes US$11,000 — the same result as a loan at 10 per cent.
Commonly confused with
| Term | How it differs |
|---|---|
| Tawarruq | In tawarruq the asset is sold on to an unrelated third party. In bay' al-'inah it goes back to the original seller, which is why it attracts stronger objection. |
See also
- TawarruqTawarruq is a structure in which a person buys an asset on deferred payment terms and immediately sells it to a third party for cash, ending up with cash now and a debt payable later. It is widely used and heavily debated.
- MurabahaMurabaha is a sale in which the seller discloses its cost and the agreed profit to the buyer. Islamic banks use it to finance purchases by buying an asset and reselling it to the customer on deferred terms.
- RibaRiba is the prohibited increase at the centre of Islamic finance: an unjustified excess in a loan or in certain exchanges. It is broader than the English word "interest" and is not limited to excessive rates.
- Maqasid al-ShariaMaqasid al-Sharia are the objectives or purposes of Islamic law — classically, the protection of religion, life, intellect, lineage and property. In finance they are invoked to ask whether a product serves those aims, not just whether its contracts are technically valid.