Bai` `Inah Transactions In The Money Market

Bai` `Inah Transactions In The Money Market

Bai` `inah is perceived as a suitable contract to be introduced in the Islamic Inter-bank Money Market. In this transaction, the Shari’ah-compliant asset (for example, Government Investment Issues) will be sold by a financier (for example, central bank) to the recipient bank, at X price, on deferred terms. Then, the recipient bank will sell back the asset to the financier, on cash basis, at Y price. The deferred price of X is higher than the cash price of Y, hence the difference is regarded as profit to the financier. Both sale contracts are executed separately. The question is whether the application of bai` `inah, as explained above complies with the concept of bai` `inah, which is acceptable in the Shari’ah. Resolution The Council, in its 8th meeting, held on 12th December 1998 / 23rd Syaaban 1419, resolved that bai` `inah transactions in the Islamic Inter-bank Money Market is permissible, with the following conditions: 1. Bai` `inah transactions must strictly follow the mechanism which is accepted by the Shafii school of law; and 2. The transacted asset is not a ribawi item. Issuer: Shariah Advisory Council, Central Bank of Malaysia.