Shubuhat On Matter of Bai Al-Inah and Tawarruq

International Journal of Business and Technopreneurship
Volume 2, No.1, February 2012 [85-101]
Shubuhat on Matter of Baialinah and Tawarruq

Essia Ries Ahmed1, Sofri Yahaya2 and Md. Harashid3
ABSTRACT
Bai` alinah and Tawrruq concepts are used in Islamic banking system and
capital market to facilitate the needs of market players when Islamic financial
industry was pioneered in the Islamic countries. Even though the majority of
Shariah scholars disallow these concepts, some of them are of the opinion that it
is acceptable as long as all the pillars and conditions of the contracts are
complied with. Based on these opinions, bai`alinah and tawrrauq concepts are
differences about comply with Shariah rules. Therefore products of Baiinah and
Twarruq are very controversial issues based on Shariah compliance criteria; the
primary objective of this paper is to highlight to Shubuhat on product of
Bai'alinah and Tawrruq. It was found that shubuhat did exist in product of
Bai'alinah and Tawrruq.
Keywords: Doubtful activities (shubuhat), baiinah, tawrruq.
1. INTRODUCTION
Nowadays, the institutions of Islamic banking operate in a very competitive and
demanding industry. In order to survive in this challenging environment, they
should be able to meet their customers' financial needs. Innovation of product is
seen as the key successful factor to maintain current growth of business.
Interestingly, the new products development can be seen more extensively in the
institutions of banking in South-east Asia when compared to innovation within
the Middle East. Malaysia is one of the countries where new products are
regularly developed and it becomes the first country to establish the Islamic
Inter-bank Money Market (IIMM), the full-fledged Islamic stock broking
company, the corporate Sukuk (Islamic bond) and the Islamic unit trust.
However, the advancement of Malaysian Islamic banking industry has raised
controversial issues as the advancement is solely based on the application of bai'
al-Inah and Tawarruq which has been harshly criticized by most of Shariah
scholars in the Middle East. Because of the bai' al-Inah and Tawarruq,
Malaysian Shariah scholars are viewed as adopting a more lenient approach
when compared to their Middle East counterparts.
1
2
And 3School of Management, Universiti Sains Malaysia, 11800 USM, Penang, Malaysia.
Graduate School of Business, Universiti sains Malaysia, 11800 USM, Penang, Malaysia.
Essia Ries Ahmed et al / Shubuhat on Matter of Baialinah and Tawarruq
The world over, individuals, governments and public and private corporation
seek places where they can obtain loans at a very minimum interest rate so that if
any business environment risks prevents them from achieving their desired goals,
they would still be able to off-set their loan obligation and remain good in the
eyes of the bank for future purposes. However, the conventional banking system
whose life-blood is interest cannot guarantee such an environment for business
growth, hence increasing the risk factors for businesses especially SMEs (Small
and Medium Enterprises). It is against the backdrop that the Malaysian
government opted to adopt the Islamic Banking system in 1993 in order to tap
into the latent and untapped potentials of the system and thereby hasten
development by providing finances for every category of the populace.
Further restructuring was embarked upon in 1993, realizing the potentials and
competitiveness of Islamic banking, another depth to Islamic banking was
introduced, where conventional banks in Malaysia are allowed to offer Islamic
banking products through Islamic windows. This system leads to the introduction
of the Interest-Free Banking scheme or "Skim Perbankan Tanpa Faedah (SPTF).
These Islamic banks and "Islamic windows" have to operate hand in hand with
conventional banking system where issues of marketability; viability and
competitiveness are very pertinent in securing and maintaining large customer
base. Islamic banking today has become an undeniable reality. The number of
Islamic banks and the financial institutions are forever increasing. New Islamic
banks with large amount of capitals are being established while, conventional
banks are opening Islamic windows or Islamic subsidiaries for the operations of
Islamic banking. Even the non-Muslim financial institutions are entering the field
and trying to compliment each other's business in order to attract as many Muslim
and non-Muslim customers as they can. It seems that the size of Islamic banking
industry will be multiplied during the next decade and the operations of Islamic
banks are expected to cover a large area of financial transactions of the world
(Usmani, 2002)
Although the Islamic banking system is different from the conventional banking
system; there are some similarities between the two. For instance, an Islamic
bank conducts its activities in accordance with the Islamic Shariah principles that
strictly prohibit any payment or receipt of interest, but they can also offer
products and services which are similar to those offered by a conventional bank
(Gerrad and Cunningham, 2001), however, the difference lies in the manner the
banking transactions are conducted and the way money is mobilized and
recorded.
As mentioned by Haron and Shanmugam (1999), the establishment and
operations of Islamic banks have raised many theoretical and conceptual
considerations because Islamic bank are not expected to have similar objectives
and philosophies with other business entities. However, Islamic banking still has
the same purpose as conventional banking except that it claims to operate in
86

accordance with the rules of Shariah, known as fiqh al-Muamalat (Islamic rules
on transactions). In contrast, Islamic banking differs from conventional banking
in several ways, such as the prohibition of transactions based on interest rate and
the requirement that bank's operations must be carried out according to certain
procedures through the use of certain financial instruments.
Wafa, Nasri and Nizam (2003) observed that the objectives of Islamic banking
and philosophies should be in line with the revelations in the Al-Quran and
Hadith, as the term of Islamic banking means conducting banking operations in
consonance with Islamic teachings. Ismail (1992 asserts that, the primary goal
of Islamic banking is not to maximize profits as the interest-based banking
system does, but rather to render socio-economic benefits to the Muslims. On
the other hand, Muslim bankers consider the role of Islamic banking as strictly
commercial, based on interest-free financial instruments without making losses.
One of Malaysias foremost Islamic banks, the Bank Islam Malaysia Berhads
(BIMB) corporate objective is to provide banking facilities and services in
accordance with Islamic principles to all Muslims as well as the population of
Malaysia. The Islamic principles mentioned here are essentially those belonging
to the body of Shariah rules on commercial transactions that relate to banking
and finance. The bank efforts to provide these banking facilities and services are
undertaken within the framework of its viability and capability to continuously
grow and expand (BIMB, 1984). Islamic banks offer a wide variety of Islamic
financing products, one of which is Personal Financing. While Personal Loan in
conventional banks is interest based, Personal Financing in Islamic banking
adapts the principle of Bai al-lnah, which is essentially sale based on the
transaction of Nasiah (delay).
Saiful azhar and Azizi (2003) Bai al-lnah is allowed by the Shafie' School of
Fiqh and this is the school of fiqh of Muslims in Malaysia, it follows that the
Bai al-lnah is widely used in many banking facilities such as Personal Financing.
With global markets becoming more competitive, the requirement for the product
to be globally viable is no longer an option but a necessity for Malaysian banks if
they are to share in the global economy, this has become even more important
with traditional portfolio investments leaving the country, and requiring an
urgent action to forestall the tide hence the reversal factor must come from global
Islamic funds. It is worth mentioning that fund managers of international Islamic
portfolios are generally advised by Middle-Eastern Muslim jurists (Fuqaha')
most of whom belong to the Maliki, Hanbali and Hanafi schools of Fiqh. It is
critical that Islamic financial instruments in Malaysia are designed to attract these
investors as well; therefore insisting on a Shariah standard based on one school
of fiqh alone may not be of interest to Malaysia as this may isolate the country
from global Islamic finance.
87
As mentioned by Mhod (2007) Tawarruq is the sale that is comprehensive as it

examines as it the kinds and forms and it current practiced by Islamic and
commercial banks and financial institutions. This sale has become one of the
important transactions used by certain banks to enable their customers to get
liquidity.
According to (Jamal, 2002), It was mentioned earlier that Imam al-Bukhari
recorded this Hadith in Kitab ul-Buyu (Trading). When it comes to trading there
are many issues which are doubtful, matters which exist then and even now, e.g.
where cheating is done professionally. Therefore, we have to be careful if the
matter related to trading is it permissible or not permissible, or if it is doubtful, in
which case we have to avoid it. There are a lot of doubtful things and
controversial issues BaiaInah, Bai' Al Tawwaruq, Commercial Insurance,
Short selling, Pricing and The interest received due to depositing savings in
government deposit funds(Ahmad Yusuf, 1990), particularly those institutions
that are using both systems. This will affect the Muslim customers, if these
institutions are not committed to comply with the law. There are differences
among traditional scholars as well as between the commissions and
contemporary jurisprudential boards about the issue of Bai Al Inah because
the buyer is not after the commodity but he is interested in the Ein, i.e. the
money, and only uses the transaction as a ruse for achieving his purpose. The
majority of traditional scholars have forbidden it and the Shafi'I school followers
allow it (Al Showkani Nayl Al Awtar 5/206) (Majmoo' Al Fatawa 29/30).
As well as the majority of ulama in the Middle East do not agree with
transactions of Bai al Inah which involves Bai al dayn, while some of the
ulama, have accepted them based on the valid external evidence of sale (Mohd.
Masum, 2001). Also, there are differences among traditional scholars about
issue of Tawarruq. These are controversial issues, because the differences in the
rule of Tawarruq raise Shubuhat. According Alsarkhasi view of Hanbali and
Shafii, Tawarruq is generally allowed. But according Ibnu Taimiah and Ibnu Al
Qayyim,Tawarruq is generally disallowed (Mohd F, 2007).
Therefore, the present paper will investigate the Shubuhat the issues of baialinah
and Tawarruq in Islamic Banking. There is still a lack of studies in such doubtful
activities (i.e. Shubuhat) in Islamic Banking especially with regard to problem of
defining the concept of Shubuhat. Therefore, this paper will be a pioneer in this
regard.
2. DEFINING AL SHUBHA
Al Shubha lexically (likeness): that which bears resemblance to two things.
Allah (swt) says in surat Al Baqarah: 70, for surely to us the cows are all alike tshabaha- i.e. It has become difficult for us to distinguish between the required
cow and the others. Surat Al Baqarah: 118 and those who have no knowledge
88

say: Why does not Allah speak to us or a sign come to us? Even thus said those
before them, the like of what they say; their hearts are all alike tshabahat-.
Indeed we have made the communications clear for a people who are sure i.e.
they are alike. Also in surat Ale Imran: 7 He it is Who has revealed the Book to
you; some of its verses are decisive, they are the basis of the Book, and others
are allegorical -mutshabihat-; then as for those in whose hearts there is
perversity they follow the part of it which is allegorical -tshabaha-, seeking to
mislead and seeking to give it (their own) interpretation. but none knows its
interpretation except Allah, and those who are firmly rooted in knowledge say:
We believe in it, it is all from our Lord; and none do mind except those having
understanding.
Al Shubha in shariah (doubtful deeds): The scholars have disagreed on how to
define al Shubha according to shariah; some say as ibn Rajab al-Hanbali said "It
is the doubtful deeds that occurs whenever there existed two different beliefs
regarding a matter generated from two different reasons". Al Showkani said in
Nayl Al Awtar (5/p309), "It is that for which there is conflicting evidence. Some
scholars said that is mubah (permissible) and others said it is makrooh (disliked).
(Nayl Al Awtar, Al Showkani). Ibn Daqeeq Al Eid said, " doubtful deeds is any
matter supported by conflicting evidence from Quran and sunnah, and could
carry more than one meaning, and it is devout to avoid" ( The explanation of the
Imam Nawawis forty hadeeth: p24).
Dr. Yousef Al Qaradawi said "In the mind of a mujtahed (a scolar qualified to
issue rulings) there is a region in between the obvious halal and the obvious
haram, either due to conflicting evidence, or due to doubtful in the application of
the evidence on a particular matter. It is devout as a Muslim to avoid these
doubtful deeds so as not to be dragged into resembling what is known to be
haram (Halal and Haram, p33). Al-Imam al-Suyuti said in his commentary on
Sunan Al Nassa'i while narrating this hadith, " The scholars have had a lot to say
on the explanation of doubtful deeds, we can explain it in the best way, doubtful
deeds is confusion (iltibas) and this term is used to describe something
resembles a certain base matter, while at the same time it resembles another
matter conflicting with the former, as if it resembles the latter more closely,
hence they say ishtabaha i.e. its mixed from two deferent things and become one
thing. Obviously, here it is devoutness to avoid this confusion and whoever does
that is described as devout and conservative in his religion (Al Suyuti Al
Hashiah: 7/243)". Al Suyuti has also explained this matter in detail in his book Al
Ashbah wa al nathaer.
As for those who said that doubtful deeds is those matters that are considered
permissible (mubah), their reasoning is that these matters are neither explicitly
halal, nor explicitly haram, therefore what else could they be but mubah,
especially as excesses in these permissible matters could lead to haram, for
instance in food and drink and attire and so on. And those who defined it as
89
makrooh took into consideration that shariah has warned against doubtful deeds,
and if there is no clear evidence forbidden a certain matter, and then what would
it be? It must be makrooh, and excesses of this nature certainly lead to haram
itself.
As such, in consistent with the synthesized concepts of shubuhat by Islamic
scholars discussed above, this study conceptualizes shubuhat as a region between
the halal category and the haram category leading to confusion (iltibas) in the
mind of a mujtahed (a scholar qualified to issue rulings) in the matter of
categorizing it in either category. In the mixed financial quantities, shubuhat is
generated when (quantity of haram has become mixed with quantity of halal).
Shubuhat is generated due to conflicting evidence, or due to doubtful in the
application of the evidence on a particular matter. It is devout as a Muslim to
avoid these doubtful deeds so as not to be dragged into resembling what is known
to be haram.
This study further conceptualizes shubuhat as one of the elements of shariah
compliance. Shariah compliance is commonly delineated by halal (permissible)
and haram (forbidden). In a way, this study adds another element to the concept
of shariah compliance, shubuhat in consistent with the first hadith quoted in the
foregoing section earlier.
3. LITERATURE REVIEW ON BAI ALINAH AND TAWARRUQ
PRACTICE
Baialinah is an act of selling subject matter and then purchase it again
(immediately) with the cheap price. (ibnu qudamah 1408H:26). Saiful and Azizi
(2003) since the school of fiqh of Muslims in Malaysia is predominantly shafie,
baialinah is popular and widely used in many banking facilities such as personal
financing overdraft, and deposits. Although it appears that a consensus on
baialinah has been made at the supervisory level, the view of Shariah scholars
do differ, especially when the requirement for the product to be globally viable is
concerned.
Wan Ismail (1992), in the contracts of sale by way of bai alinah the intention is
to create a sum price difference between two normally almost simultaneous sales
of the same commodity or subject property by the same parties, only alternating
in roles as vendor and purchaser vice versa. The sum difference between the
first sale (immediate cash price) and the second sale (deferred payment- BBA) is
the essence of the transaction, and it is in the classification or determination of
this sum, whether it is a debt or a loan, that the Islamic legal experts and scholars
have disputed for the last fourteen centuries, right from the time of the Prophet
(PBUH), and to this day no solution in the sense of consensus has been reached.
90

The Islamic financing services industry has witnessed the introduction of some
mechanisms recently that are forbidden or at best controversial; these products
have been the subject of intense debate. Some mechanisms permit Riba
(interests) through the back door. Others appear permissible in form only, and not
in substance.
3.1The Meaning of Bai alInah
BaialInah is generally known as sale based on the transaction of Nasiah
(delay). The (prospective) debtor sells to the (prospective) creditor some object
for cash which is payable immediately; the debtor immediately buys
simultaneously the same object for a greater amount for a future date. (Schacht.
Introduction to Islamic Law, p. 79), thus the transaction amounts to a loan.
In the transaction described above, the difference between the two prices
represents the interest. Such contract was evolved in the early period of Islam
and it exists for the fundamental reason that a loan for interest is forbidden
because it is equivalent to usury (riba) (Rosly & Mahmood, 1999). In this
contract, baialInah, there is an economic interest for both the borrower and the
lender, which at the same time circumvents the prohibition of usury. The issue
which concerns us here is how Islamic law views such contract: whether the sales
are allowed prima facie, or disallowed because the motive behind the sales is to
legalize that which is illegal or usurious.
3.1.1 The Creation of a Bai alInah Underlying Asset
Asset securitization is the essence of Islamic sukuk issues, as a sukuk must
assume the role of al-mal or property to qualify as an object of sale. An object of
sale in the Islamic law of contract must be a property of value. When a bond
certificate is supported by an asset as evidenced via the securitization process, it
is transformed into an object of value and therefore qualifies to become an object
of trade whereby it can be purchased and sold in both the primary and secondary
markets. Investors then will have the right to sell (haqq mali) these bonds. In the
bai alinah asset securitization, the financier purchases the asset from the issuer
and will sells it back to the same party at a credit price, this buy-back agreement
will ensure that the issuer will receive the money in cash while financier will be
paid a prefixed or contracted amount in a future date and debt payments will be
made by installment through bond issues. The difference between cash money
and mark-up price will represent the profit due to the financier; however, the
underlying asset is therefore crucial in determining the legality of these bonds
under Islamic law. In the Malaysian experience, these assets include factories,
equipment, stock and inventory and even intangible asset such as a list including
building and properties.
91
3.1.2 Bai alInah and Process of Islamic Securitization

A bond is like a loan. In bond investments, investors are effectively lending
money to the issuer (a government or a corporation) for a pre-determined period
of time. In return, you earn interest. Issues that enjoy a strong credit standing,
generally offer lower interest rates. Conversely, less credit-worthy issuers offer
high interest rates, to entice investors to take a bigger risk and invest with them.
Bonds, when compared to equities in general, are considered safer and more solid
instrument which pay regular or predictable income. The interest paid on an
annual or semi-annual basis tends to be higher than the interest you would earn
on bank deposits. (UOB Asset Management) By the conventional definition as
noted above, one may deduce that bond constitutes the nature of the loan
contract, that being the case, Shariah deems loans as a Ribawi contract and thus
when the lender or borrower secures any benefit whether in term of money or any
other kind of consideration, it is usury. To that effect, it is pertinent to quote the
saying of the Prophet Muhammad (P.B.U.H): That every loan entailing benefit
is usury (Al-Shirazi, al-Muhadhab, vol. 1, p. 304) and thus the nature of bond
would not be changed irrespective of the fact that nowadays the bond is
becoming an instrument for providing necessary capital for production. In order
to have a clear image on this issue, we should determined whether Malaysian
Islamic bonds constitute usury or not by looking into its nature and definition.
The BIMB Securities Sdn Bhd. outlines that the Malaysian Islamic bonds are
structured on the basis of Baialinah (refinancing of assets) and subsequently
traded on the basis of Bai alDayn (debt-trading). (BIMB Securities) If we focus
on the structure of Malaysian bonds as noted above, we can deduce its operation
on two unacceptable methods by virtue of Shariah standards, which render them
usurious, i.e. Baialinah and Baial-Dayn. The process of issuing and trading
bonds consists of three main stages namely, 1) asset securitization via the bai alinah contract, 2) the sale of new bonds issues and 3) trading in the secondary
market in which the contract of bai al-dayn at a discount has been applied. The
critical issue at this juncture is to show that the securitization of Islamic bonds
using baial-inah has no legitimate basis since baial-inah is not a valid
contract according to the consensus of the Muslim jurists.
4.
VIEWS OF THE FOUR SCHOOLS OF THOUGHTS (CONSENSUS

OF THE MUSLIM JURISTS)
4.1 View of Imam Shafii

According to school of Imam Shafii, such sales are to be allowed because, in the
words of Imam Al-Shafii, contracts are valid (Sahih) by the external evidence
that they were properly concluded: the unlawful intention (niyya or qasd) of the
parties is immaterial; it does not invalidate their act, unless expressed in that act.
(A. A. Qadri, 2007) Al-Shafii illustrated his teachings with the following
92

example which concerns the marriage of a man who intends to keep his wife for
only a short period of time but does not make the intention known to anyone, the
marriage is valid, whereas a muta marriage is invalid (Batil) because the
intention is expressed before or during the process. As the foregoing example
illustrates, the Shafiis considered that the intention of the parties is taken into
account only when the invalid intention is explicitly mentioned in the contract.
4.2 View of Imam Maliki and Imam Hanbali
The Maliki (Ibn Rushd. Bidayat al-Mujtahid, vol.2, p. 58) and Hanbali jurists
hold that the contract of bai al inah are not valid (Sahih) because, according to
them the motive of the parties to the contract determines the legality or illegality
of the contracts, and in the sale under consideration the motive of the parties is
illegal and, therefore, the sales are not valid because they constitutes a legal
device (Hilah) to get a loan with interest which should be averted at all costs
according to the Shariah. (Ibn Taymiyyah, Majmu al-Fatawa) and Ibn Qayyim,
a Hanbali author states that, intention influences legal acts: the formality of
legal act can be the same but end results depend on the intention. Another
Hanbali (Ibn Qudama,) author noted that if the vendor of a quantity of grapes
juice knew, either directly or owing to circumstantial evidence that the buyer
intended to use the juice in order to make wine, then the contract is void.
According to the Maliki Ibn Rushd, the marriage of a muhalil ( a man who
marries a woman divorced three times by her husband only with the intention to
divorce her afterwards and make lawful her re-marriage to her previous husband)
is to be cancelled (Batil). Maliki (Ibn Rushd vol.2, p.58.) is also of the opinion to
cancel the sale of which article when the contracting parties intend to make using
of that article for an unlawful purpose, such as the sale of weapon to people
already at war or to bandits. It is explicit in the opinions of previous noted jurists
that the intentions are to be taken into account in relation to legal deeds as they
are in the matters of Islam, faith, does not tell Muslims to define an objective,
and then use what means they observe fit in order to attain it. Instead, it informs
them that if the means are correct, the ends will look after themselves. Islam does
not learn and teach us to overcome usury (riba) by competing with usurer at his
own game.
4.3 Conclusions in the Light of the Above Evidence
Firstly, It is obvious that bai'alinah is a legal device evolved in order to
overcome the prohibition of riba (interests), and is not deemed to be an act of
sale, as there is clear evidence that such act amounts, in effect, to a contract of
loan. Thus, it is forbidden (unlawful) as it is based on unjustified enrichment or
receiving an advantage of monetary value without giving a counter-value
(Rosly, 1999).
The second point is that behind, Imam al-Shafiis recognition of the validity
93
(sahih) of Bai alinah, is his personal opinion and not based on interpretation of
any authentic Islamic authority. However, according to other schools the
prohibition of such sale was based on Ijma' ulama (the consensus of the jurists)
on the authority of Islamic law sources. As Ibn Qayyim (Ighatha al-Lahfan, vol.
1, p.352.) prohibited Bai alinah quoting the following Hadith that Allahs
messenger says: A time is certainty coming to mankind when they legalize
(Yastahillun) the Riba under the name of Bai' (trade concerning that intending
usury by words of a sale).
Ibn Umar said: (Al-Shukani, Nayl al-Awttar, vol. 5, pp 318/24) I heard the
Prophet of Allah (P.B.U.H) say when you enter into the bai' alinah transaction,
hold the tails of oxen, are pleased with agriculture, and give up conducting jihad,
Allah will make disgrace prevail over you, and will not withdraw it until you
return to your original religion. Wasil b. A'ata (Abu Hilal al-Askari, Kitab alawail, p. 278.) is reported to have said that a right judgment can be arrived at
through four sources: the express word of the Book, authentic Hadith, Qiyas and
consensus of the ulama community. Bai' alinah, is a violation of the established
consensus, since this sort of sale agreement constitutes the taking of usurious
interest as most jurists hold that such transaction should be forbidden.
Furthermore, Ibn Taimiyyah divides sales into three groups according to the
buyers intentions, namely:
1) That he purchases the goods in order to use or consume them such as
food, drink and the like, in which case this is sale, which God has
permitted.
2) That he purchases the goods in order to trade with them; then this is
trade, which God has permitted.
3) That the reason for purchasing the goods is neither the first nor the
second, then the reason must be dirhams (money) which he needs, and
it was difficult for them to borrow, so he purchases the good on credit
(with an increased dirhams) in order to sell it and takes its price. This,
then, is bai' alinah which is haram according to the most eminent of the
jurists.
The third point is that there is hardly any satisfactory evidence which enables one
to say that al Shafiai has expressly declared that bai, alinah to be (Halal). It
should be pointed out that al Shafiais method of determining the validity of any
contract by its formal evidence, that they are legally concluded, cannot be
cancelled on account of the intention of the parties, although he had to recognize
such intention as forbidden (Haram) but the contract remains valid unless the
intention is expressed in the contract. As not every valid contract is a halal
contract, the Shafiis may, thus permit contracts because its legal preconditions
are fulfilled, but forbids the transacting act of the parties when it conflicts with
Shariah principle. The following example illustrates his teachings, Al Shafii in
94

his book Al-Umm, states that it is not disallowed to sell a sword to a person who
could use it to commit an unjust killing, however, that sort of sale is valid
(Sahih), for that person might not use the sword for that purpose, but at the same
time Shafii recognizes such transacting act as forbidden (haram) and the person
is not allowed to take possession of the sword (Tamlik), thus preventing the
contract from producing its effects,(Ali Al-Saluos, Mumalatnaal al-musira).
In conclusion, one can say that al Shafiis teaching has reached a level which is
similar to the other Muslim schools although the methodology which he adopted
appears to be different. Al-Qaradawi in his book (Islam and Current Issues)
states; in relation to this question of bai' alinah that it is a clear case of usury and
the device: why should we practice transaction which contains elements of
devices while we are in position to have a clear and apparent alternative
transaction? Furthermore, Muamalat which contains elements of devices
deviates from the true objective of Shariah. The use of legal device is therefore
evidence that the Intention (niyyah) factor is undermined or made secondary in
the securitization process of Islamic bonds in some countries. It is apparently
clear that most underlying assets used in Islamic bond securitization have no
direct relation with the actual project itself. These assets were simply collaterals
that serve as guarantees to the debt issued. To retain the basic structure of
traditional bonds in Islamic finance, that is providing fixed return to investors,
practitioners, the relevant Shariah experts may have wrongly applied Shariah
laws, which implies now that the legitimacy of Islamic bonds issued using bai
alinah is Shubuhat.
5. TAWARRUQ
Tawarruq is one of the Islamic banking products, the present contract by the
Islamic financial institutions and conventional banks with Islamic windows. This
contract is considered a means of obtaining money according to Islamic law.
Tawarruq is defined as the process, whereby a client who is in need of liquidity,
purchases an item from the bank on deferred installment payments, he then sells
the item and use the money obtained for his personal needs. It is one of the
financing instruments that witnessed sharp disputes among a number of Muslim
jurists in the Muslim world (Source: Islamic Online). This resembles Bai'
alinah except in that the buyer sells the commodity to someone other than the
original seller. Some scholars have permitted it while others have refrained from
it. Omar ibn Abdel Aziz named it the "sister of riba" and Shaikh of Islam Ibn
Taimiyyah disliked it and said this was the more likely ruling among the scholars
( Majmoo' Al Fatawa 29/431). Tawarruq has been quite a controversial issue
lately, especially after the resolution of the International Fiqh Academy Council
on Tawarruq. In view of the advisory opinion (fatwa), various stakeholders of
Islamic finance such as scholars of Shariah, accountants and bankers, have
95
attempted to express their opinion on the matter. Shariah scholars like

DeLorenzo, Dr Aznan Hasan, Dr Nikan Faroozye, Dr Akram Laldin, Monzer
Kafh and Shaikh Nizam Yaquby are among scholars that responded to the matter
with some unique arguments. These scholars understand and see that matter
from a global perspective in responding towards the resolution made (Ibn
Yusof, 2009). The disagreement over the legality of Tawarruq between the
bodies, religious councils, as well as Shariah scholars indicates the existence of
mixing halal and haram in this contract. This means that there are suspicions
because of a conflict of views between scholars of Shariah , the religious
councils and the bodies to the legitimacy issues of Tawarruq, this, as indicated
by the presence of Imam al-Ghazalis shubuhat due to a mismatch (contradiction)
between the evidence and the lack of clarity to this controversial issue
(Tawarruq).
5.1 The Meaning of Tawarruq
According to the fiqhi Encyclopaedia of Kuwait's Awqaf and Islamic Affairs,
Tawarruq means buying a commodity with deferred payment and selling it to a
person other than the buyer for a lower price with immediate payment.
According to Engku Rabiah (2006), Tawarruq has been generally used to refer
to an arrangement whereby a person who was in need of cash bought some
goods for deferred payment. Then, he sold the goods to another party (not the
original seller) for cash payment at a lower price.
According to AAOIFI Shariah standard (summarized draft translation of
exposure draft on Tawarruq- July 2006. Tawarruq is the purchase of a
commodity (i.e. subject matter of Tawarruq) on deferred payment basis by way
of either direct sale or Murabahah. The commodity is then sold for cash to a
party other than the original seller". In the terminology of fiqh, Tawarruq is a
stratagem for generating cash, when goods are purchased on a deferred
payment, and then sold for less than the agreed price. Thus, the buyer goes into
the deal knowing that he will lose, but accounting for the cash is worth the loss.
Among the classical schools of fiqh, the only one to approve of such a
transaction was the Hanbali School. There is no legal bar to this form of sale,
though certain scholars have disliked it, particularly if someone habituates this
sort of transaction.
According to Zaharrudin (2005), selling possessions for payment to be made
later at a price more than its current price is known among the people of
knowledge as the issue of At-Tawarruq. The preferred view among the
Hanabilah (followers of the Hanbali Mathhab) is that it is permissible. Shaikh of
Islam Ibn Taimiyyah said, "If the one who buys the product has no need of gold
and silver, he buys the product to sell it for that which he needs. If the product
returns to the original buyer, then that is that which there is no doubt concerning
its forbiddance? If he sells it to other than the original buyer in a complete sale
96

and it does not return to the first person in any way, the Salaf' have differed
concerning its dislike, and they call it At-Tawarruq. 'Umar bin 'Abdul-Aziz
disliked it and he said that At-Tawarruq is the brother of riba but Iyyas bin
Mu'awiyah allowed it. There are two different opinions recorded from Imam
Ahmad about it." He (Ibn Taimiyyah) also said, "Whoever takes a loan from a
man, there are three aspects to it:
According to Riyadh bank, Tawarruq is a Shariah compliant financing method,
with which you can raise loan finance through buying instalments in a local
commodity, owned by the Bank. The applicant then authorizes the bank to sell
his share in this commodity, on his behalf, to a third party for cash and then
deposit the proceeds into his account.
According to Obaidullah (2005), Tawarruq is another financing product that is
cited as a classic case of hiyal, or legal stratagem, but has been permitted by
mainstream scholars under certain conditions. Tawarruq becomes a source of
funds by combining two separate sale and purchase transaction. An individual
in need of funds purchases a commodity on a deferred payment basis from a
seller and then sells the same in the market in order to realize cash. This is
considered from the perspective of hiyal (legal stratagem), since the individual
concerned has no real intention of buying or selling the commodity.
5.2 Financing based in Tawarruq principle
According to Obaidullah (2005), Tawarruq is a prior-arrangement between
parties. Another condition of a valid and permissible Tawarruq is the absence of
any pre-arrangement between the three parties. You may recall here that under
Bai'al-Inah the market price of the commodity need not bear any relationship
with the amount effectively borrowed, in Tawarruq too, the three parties
involved - bank, client and vendor may enter into a prior agreement.
In Tawarruq, therefore, one need to exercise extra care and subject the product to
an additional dose of investigation before accepting it as Shariah compliant
especially, when the bank asserts that the terms of the Tawarruq based product
are same as the credit term of other conventional financing products. Example a
Tawarruq - Based credit Card. Based on the mechanism which allows short-term
funding of an amount that closely matches the need of the customer, a credit card
has recently been designed by an Islamic bank that uses the concept of
Tawarruq.
The mechanism begins with the bank advancing a certain amount of funds to
customer under Tawarruq, the bank then creates under Wadiah principle a
guaranteed deposit account for the customer for the safe custody of the amount.
Now the customer can use his card for retail purchases and cash withdrawals just
97
like a conventional credit card except that the cash held in his Wadiah account
now backs each transaction.
At the end of every month, the value of total transactions by the customer is
computed. A fresh Tawarruq for this value is undertaken to replenish the deposit
account. Needless to say, this card is essentially similar to the Bank Islam Card
with the replacement of Bai 'al-Inah by Tawarruq. Areas of application a survey
of the above controversial mechanisms in use at various banks across the globe
reveals the following major areas of application. Bai al-inah is being used to
provide short-term working capital financing, short-term personal finance and in
structuring credit card. The Tawarruq is being used to provide short-term finance
to meet working capital, other short-term requirement and in structuring credit
card.
5.3 Islamic Shariah view of the Tawarruq transaction
The issue which concerns us here is how Islamic law views such Tawarruq
contracts. Differences in scholar opinion on ascertaining the hukm on the concept
of Tawarruq in transactions are summarized below.
1) View of The jumhur, Hanabilah and Shafie'
According to al- Sarakhsi, Tawarruq is generally allowed. Hanabilah
and Jumhur's reason. Allah has allowed the sale and purchase and has
forbidden the interest.
i.
ii.
Sell subject matter to third party.

The Prophet (PBUH) said in work: The sale of large amount of
dirham and sale of dirham jamb have no element of Tawarruq riba.
It is a sale and purchase transaction.
2) View of The Ibnu Taimiyah and Ibnu AlQayyim

According Ibn Qayyim, Tawarruq is generally disallowed. In fact, they
are strongly against the practice and consider it as fraud against Allah &
Shariah.
Reason presented for Ibnu Taimiyyahs assertions
i.) Verily, the Prophet has forbidden selling while in urgent condition".
Abdul Halim (2004), the sale and purchase by way of Tawarruq and Bai
alinah are both meant for producing immediate cash, but not for selling and
differentiating between both of them. Thus Bai alinah transaction must be
observed through its price to the first seller and not to Tawarruq. This is Bai
98

alinah for sale and purchase contract between two parties whereas Tawarruq is
the contract between three parties.
In conclusion, one can say that Tawarruq has been suspicious Mashubuh
because it contains elements of usury and hilah and also because the Tawarruq
is controversial (i.e. have conflicting the evidence between scholars (conflicting
of evidence is one of determinants of shubuhat) This means that there are
suspicions because of a conflict of views between scholars of Shariah , the
religious councils and the bodies to the legitimacy issues of Tawarruq, this, as
indicated by the presence of Imam al-Ghazalis shubuhat due to a mismatch
(contradiction) between the evidence and the lack of clarity to this controversial
issue (Tawarruq).
5. CONCLUSION
In conclusion, one can say that baialinah and Tawarruq has been suspicious
Mashubuh because it contains elements of usury (riba) and hiayl and also
because this products is controversial (i.e. have conflicting the evidence between
scholars (conflicting of evidence is one of determinants of shubuhat) This means
that there are suspicions because of a conflict of views between scholars of
Shariah , the religious councils and the bodies to the legitimacy issues of
baialinah and Tawarruq product, this, as indicated by the presence of Imam alGhazalis shubuhat due to a mismatch (contradiction) between the evidence and
the lack of clarity to these controversial issues.
This study should be viewed in Islamic business perspective. In other words, the
increasing emphasis made on shubuhat is not for hindering the growth of IFIs,
but for accentuating and, most importantly, giving practical form to the general
purpose of shariah which seeks to benefit the people and prevent harms from
occurring to them.
REFERENCES
AAOIFI, Sharia (2004). Standards, Bahrain, pp. 232.
Abdullaah. (2002) Islamic bonds issues: the Malaysian experience.
Ahmad Yousef. (1990) al-qeam al-islamia (Islamic Values).
Al-Bukhari, M. I., I. (0087). Sahih Al-Bukhari (5th ed. Vol. 1). Jeddah, Saudi
Arabia: Daru ibn kathir.1/295.
99
Al-Asqalani, I., H. (1428). Fath al-bari fi shareh sahih al-Bukhari (5th ed. Vol. 1)
Bertu: Daral-kotob Al-ilmyiah.
Al-Imam al-Suyuti, commentary on Sunan Al Nassa'I with Al Suyuti Al
Hashiah: 7/243.
Al-Imam al-Suyuti, (1979) Lubab Alnaqul fi asbab alnuzul.
Al-Kasani, Badaii` al-Sanaii`, vol. 6. vol.7/2127
Al Showkani Nayl Al Awtar (5/p309), (5/p206). (5/p210). Amir, S. (2009). The
Bay' al-Inah Controversy in Malaysian Islamic Banking, Islamic Science
University of Malaysia.
BIMB, (1984) Bank Islam: penubuhan dan operasi.
Engku Rabiah Adawiah Engku Ali, Bay` Al `Inah & Tawarruq: Kaedah &
Pendekatan Penyelesaian. Unpublished paper.
Gerrard, J. Barton Cunningham, (2001) "Singapores undergraduates: how they
choose which bank to patronise", International Journal of Bank Marketing,
Vol. 19 Iss: 3, pp.104 114
Haron and Shanmugam (1999), Islamic banking system and application.
Imam Al-Gazzalli, (d.111) (1096-7) Ihya ulum al-din (The Revival of the
Religious Sciences).
Imam Muslim, sahih Muslim, (2/228).
Imam Al Nawwawi- Al Majmoo' vol.9/442.
Ibnu Taimiyyah, Majmu` Al Fatawa, vol. 29. 29/431.
Imam Al Nawwawi Commentary on Sahih Muslim: vol. 11/27, 16/111.
Ismail, 1992 Bank Islam Malaysia Berhad: Principles and operations an
introduction Islamic Finance. Institute for research and Islamic studies.
Jamal, A. (2002) Commentaries on Imam Nawawi's Forty Hadith.
Imam Nawawis, the explanation of the forty hadeeth: p24.
Ibn Qayyim (Ighatha al-Lahfan, vol. 1, p.352.
100

Imam Al Nawwawi- Al Majmoo' vol.9/442 .

Ibn Rushd. Bidayat al-Mujtahid, vol.2, p. 58
Mohd, F. O. (2007). Baialinah and Tawarruq as a solution to interest-based
personal financing facility, Ms, UUM.
Mohd, M. (2001). Islamic vs. Modern Bond Market.
Mohd, Masum. (2001).Operational Mechanisms of Islamic Accepted Bill
Obaidullah. (2005) Islamic financial service.
Rosly & Mahmood, (2000) the application of bai alinah and bai al-dayn in
malaysian islamic bonds: an Islamic analysis. International Journal of
Islamic Financial Services Vol. 1 No.2
Saiful, A. (2003). The application of baialinah and bay aldayn in Malaysia
Islamic bonds and Islamic analysis, international journal of Islamic finance
service.
Usmani, M. T. & M. Taq Usman. (2002). An introduction to Islamic finance,
Brill Academic Pub.
Wafa, S. Nasri, M. & Nizam, M. (2003) pengantar perniagaan Islam.
Yusuf al-Qaradhawi. (1997). Lawful and unlawful in Islam, p33.
http://iium.academia.edu/AbdullaahJalil/Papers/497614/ISLAMIC_BONDS_ISS
UES_THE_MALAYSIAN_EXPERIENCE
101

Shubuhat On Matter of Bai Al-Inah and Tawarruq

Uploaded by

Copyright:

Available Formats

Shubuhat On Matter of Bai Al-Inah and Tawarruq

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Shubuhat On Matter of Bai Al-Inah and Tawarruq

Uploaded by

Copyright:

Available Formats

International Journal of Business and Technopreneurship

Volume 2, No.1, February 2012 [85-101]