Sale And Buy-back Agreement (Repo)

Sale And Buy-back Agreement (Repo)

Sale and buy-back agreement (repo) refers to sale and purchase of an asset (in the form of Shari’ah-compliant financial instrument), whereby both contracting parties promise to buy or re-sell the asset in future. This arrangement is essential for cash line financing in the inter- bank money market. It raises two Shari’ah issues: 1. What is the status and legal effect of a promise in a contract?; and 2. Whether it is permissible in the Shari’ah to stipulate a condition to buy or re-sell the same asset in a contract of sale? Resolution The Council, in its 13th meeting, held on 10th April 2000 / 5th Muharram 1421, resolved that wa`d in the sale and buy-back agreement is permissible, provided that wa`d is not stipulated as a condition for the sale and purchase of the asset. Issuer: Shariah Advisory Council, Central Bank of Malaysia.