Bai Inah

Bai Inah is a financing arrangement that involves the sale and repurchase of an asset by the seller at different prices. The seller of the asset sells it to a buyer on a deferred payment term and then buys it back in cash at a lower price than the original selling price, or vice versa. For a Bai Inah transaction to be considered valid, the ownership of the asset must be transferred in a tangible way from the seller to the purchaser.

Following the transaction:

• The lender owns the asset;
• The borrower receives the funds required;
• The borrower is required to pay the original purchase price of the asset (plus margin).

The final form of Bai Inah is that the buyer receives a sum of money and pays it back in a larger sum as if it were a Qard (loan) with Riba in the form of a sale. The majority of scholars have questioned this technique as the contract formula intended to bypass Islam’s prohibition on Riba and thus violating Sharia principles. The International Islamic Fiqh Academy (IFA) issued a resolution prohibiting this structure in 2012.

However, some scholars hold the opinion that the Bai Inah contract does not violate Sharia principles. This structure is valid in Malaysia, the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) considered this mechanism acceptable in 1998. It is permissible as long as certain conditions are met, including that the buyer must receive (take possession of) the good before selling it back to the original seller.

Examples of this structure Sukuk in Malaysia:

• MYBGT1300016 - Malaysia, GII 3.871% 8aug2028, MYR
• YBVR0608552 - Jimah Energy Ventures, 3% 19may2020, MYR