Bai Bithaman Ajil

A Definition

Literally - Deferred payment sale

Technically - Sale contract in which
the payment of the price is deferred
and payable at a certain particular
time in the future

In the Malaysian context, the

selling price both in bay alMurabahah and BBA is based on
the
cost
price.
However,
Murabahah is used for short-term
transactions while BBA is used for
longer term transactions
C- Evidences
(a) Hadith-

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i- It is reported in a Hadith by a
Companion,
Jabir,
that
the
Prophet (s.a.w) bought a camel
from him outside the city of
Madinah whereby the payment
was settled later on in Madinah

It is a contract whereby the

commodity
is
delivered
immediately and the price is
paid by instalments
The payment is delayed to a
fixed and stipulated period of
time. The selling price includes
the cost price plus an agreed
profit margin which will increase
depending on the length of
period
over
which
the
deferment is agreed upon

ii- Narrated by Aisha r.a that the

prophet s.a.w bought a meal from
one
Yahudi
with
deferred
payment, and he mortgaged his
iron shirt which is made from iron
D- Objectives of BBA
1) To provide financing for
potential buyers who could not
afford to pay cash in advance and
enable them to perform daily
responsibilities and obligations
without any financial hardship or
difficulties

B Nature of BBA
BBA
is
essentially
to
sell
something with a quick delivery
of sold items to the purchaser
while
the
payment
is
postponed until a specified date
in
the
future
or
through
instalment (taqsit)

2) To facilitate and support the

smooth flow of transaction in the
business society by providing
flexible
modes
of
payment
especially
through
credit
payment.

Therefore, BBA can be associated for

other sale contracts including bay
Musawamah and bay al-Murabahah.
(not applicable for salam contract)
According to some writers, BBA
occurs when the payment of bay
al-Murabahah is deferred to a
certain date agreed upon by the
parties. It is also possible to say
that while in bay al-Murabahah,
the original cost is disclosed it
may not be necessary under BBA.

E- Pillars of BBA
Seller
Buyer
Asset/goods
Price
Sighah

F- Time Value of Money In BBA

Question arises from the practice
of increasing the price due to
deferment.
The hadith did not specifically mention
whether such increment is allowed on
the basis of its deferment.
According to majority jurists including
Al-Kasani, Ibn 'Abidin, Ibn Rushd
and Al-Nawawi

Increasing the price due to the

deferment in the payment is
permissible
because
the
increase is against the commodity
and not against the money.

Its permissibility is based on legal proof

nass and by the testimony of the jurist
by consensus
Jurist said that the benefit gained
in the salam sale transaction is
the cheaper price on part of
the customer and immediate
payment on part of the
vendor

G- Pricing for BBA

One of the most effective strategy
to attract potential clients is the

trader would offer flexibility

on how the client could settle
the payment of their purchase.
Instead of paying cash, they could
purchase it on credit basis with the
payment made in the future either
through instalment or lump sum
Common practice for BBA to set
higher
pricing
for
product
purchased
through
deferred
payment or instalment compared
to cash payment
Meant to compensate traders who are
willing to wait little bit longer before
they could regain their money back. If
they receive payment in advance, they
could use it for other purpose such
reinvest
SALAM
PRICING

NORMAL
PRICING

BBA
PRICING

At a
discount
cheaper
than normal
pricing

Market rate
based on
the ability to
pay cash

Higher
than
normal and
Salam
pricing

Strategy for flexible pricing

advantages for seller and buyer:

has

Traders would be able to attract

potential customer by offering
some credit assistance for buyers
who are not capable to pay in full
and hence increase their sales

By offering higher price for credit

purchase, it is indirect strategy to
encourage buyers to pay cash
instead delaying. It is not penalty
to penalize those who cannot pay
in full. It just considered as
justified compensation for traders
who are willing to forego direct
payment in return for slightly
higher return.

H- Issues of BBAs Different Pricing

Few minority scholars against the

sale of product with deferred
payment at higher price than
daily price on the basis that it is
actually part of riba nasiah that
being prohibited in Islam
Majma Fiqh Islami concluded
that Bay Taqsit (installment) is
permissible in Shariah.
Majority scholars allowed different
pricing for both normal sale and
BBA. This permissibility is based
on several reason:

i- Scholars such as Ibn Qayyim stated

that it permissible since element that
prohibited (riba, uncertainty(gharar),
gambling(maysir) and ignorance) does
not exist in the transaction
ii- There are no single evidence that
prohibits this type of pricing.
ii- The counter-values (cash versus
product)
differ
from
each
other
compared
to
ribawi
transaction
especially ribawi debt where the
counter values are exactly the same
(cash versus cash)

I- Conditions of BBA

BBA is permitted in Islam only for

non-ribawi commodities

For ribawi commodities of different

category and type since the exchange
of items must be conducted according
to the principle of spot transactions and
within the same contract session. Any
delay in the exchange will transform
this dealing to prohibited transaction.

Majority of jurist stated that

duration of contract must be
clearly stated in a precise manner
whether using Islamic calendar or
any foreign calendar provided it is
reliable.
The payment of BBA could be
made in several form:
Installment spread over a certain
period
One lump sum in the future
Combination of both provided it
clearly stated in the contract and
both parties agreed with term and
condition in the contract.

J Flows of BBA
The Bank may finance the customers
who wish to acquire a given asset but to
defer the payment for the asset for a
specific period or to pay by installments
under the principle of Al- Bai Bithaman
Ajil
1) The bank first determines the
requirements of the customer in relation
to his period and manner of repayment.
2) The bank
concerned.

purchases

the

asset

3) The Bank subsequently sells the

relevant asset to the customer at an
agreed price which comprises:
i- The actual cost of the asset to the
bank; and
ii- The Banks margin or
allows the customer to
payment by instalments
period and in the manner so

profit and
settle the
within the
agreed

K- Differences between BBA And Bay

Al-Murabahah

L- Issues Related to BBA

In classical Islamic law, there is no

differences between BBA and bay
al-murabahah. They simply mean
deferred payment sale at a markup

In Islamic bank practice, they

confined BBA to medium and
long-term asset financing and
murabahah
to
short
term
financing

Murabahah is a trust transaction;

it require more strict condition
compared to other type of
transaction like BBA

Murabahah refers to capital

disclosure and the mark up price,
while BBA refers to the method of
payment, which is on deferment

The ownership of the Asset

The matter of legal and

beneficial ownership of the
asset before it is being sold
back to the customer.
The
Malaysian
Shariah
Advisory Council have given
flexibility on the registration
of legal title because it is
regarded as a formality and
procedural requirement.
Therefore,
according
to
Shariah, although the legal
title of the asset has not been
processed at the Land Office,
the asset can be rented or
sold because Shariah only
refers to the contract and the
possession of the asset, not
the legal registration of the
title.

The auction of asset by bank

in claiming the balance

The matter of whether the

bank
can
auction
their
customers asset which is
financed by BBA and if the
auction price is insufficient to
cover the customers arrears
to the bank.
If customer unable to pay
back their debt, the bank is
authorized to foreclose the
house or asset to recover the
debt that is deferred and
overdue.
From Islamic perspectives,
the collateral is supposed to
cover the debt. If it does not,
the bank has the right to
claim the balance of the debt
from the customer.

M- Al-Bai Bithaman Ajil

Practice by Islamic Banks In
Malaysia

(i) Legal Charge, for the

property
with
individual
titles; or

BBA financing could be utilised by

the Islamic bank to provide the
customers with medium and long
term financing to acquire such
items as the following:

(ii) Deed of Assignment and

Power of Attorney executed
by the purchaser in favour
of the Islamic bank, for the
property under master title
and has yet to be issued
with individual titles; and

a) houses/shop houses;
b) land;
c) motor vehicles;
d) consumer goods;
e) shares;
f) overdraft facility;
g) education financing package;
h) personal financing;
i) other suitable and acceptable
goods

Agreements for BBA financing

facility (a)
The
Property
Purchase
Agreement (PPA), Islamic bank
purchase the property from the
purchaser at the purchase price,
which usually the amount of
financial facility required by the
purchaser
(b)
The
Property
Sale
Agreement (PSA), the customer
undertake and guarantee to re
purchase of the financed property
for the Islamic bank at the agreed
selling price between the Islamic
bank and the purchaser
(c)
Some
other
important
documents to be executed by the
purchaser for the Islamic would
be the security documents for
securing the installment payment
of the facility amount are as
follows

(iii)
any
other
Islamic
financing
documents
as
required by the Islamic
bank, for instance, takaful
on the property or the
provision of guarantors by
the purchaser.
N- Shariah Issues Of Al-Bai Bithaman
Ajil As A Financing Facility In Malaysia
1) Issue Of Ownership, Is Al-Bai
Bithaman
Ajil
Is
A
Lending
Transaction Disguise As A Sale?
Issue of payment for stamp duty for the
following agreements by the purchaser
only i- Sale and Purchase Agreement
between the developer and purchaser;
iiProperty
Purchase
Agreement
between the purchaser and the Islamic
bank; and
iii- Property Sale Agreement between
the Islamic bank and the purchaser.

Dato Nik Mahmud b Daud

(Appellant) v Bank Islam Malaysia
Berhad (Respondent) [1998] 3 CLJ
605.

Al-Bai Bithaman Ajil is actually does not

involve of actual transfer of ownership
between the Islamic bank and the
purchaser but merely a right to
registerable interest of the Islamic bank
in the property. All the agreements
between the Islamic banks with the
purchaser is only a procedure required
by the Islamic bank to provide financial
facilities to the purchaser. Thus, the
whole transaction is still a lending of
money transaction rather than a sale
transaction as intended to be.

2) Issue Of Gharar Or Uncertainty

In BBA the issue of gharar or

uncertainty could arises involving
property which is still under
construction and not for the
property to be purchased is
already in existence. The issue of
gharar
arises
because
the
property to which the facility is
covering is to be constructed or
yet to exist, the validity of BBA
facility is questionable as the
property is not completed yet
because one of the pillar under a
valid contract of sale under the
Shariah, with the exception of
bai salam and bai istisna, the
subject matter must be in
existence.

Affin Bank Bhd v Zulkifli b Abdullah

[2006] 1 CLJ 438.
The total amount payable by the
defendant throughout 216 months at
RM3,582.80 would be RM773,884.80.
However
the
documents
signed
between the bank and the defendant
stipulated the bank's selling price at
RM466,847.28. Two purchase price in
one transaction

3) The Of The
Concept Of Justice

Selling

Price:

The primary principle of Shariah

law is to provide justice. Any
transaction that is burdensome or
oppressive
to
someone
is
absolutely prohibited.

Under BBA it could at some extent

causing hardship to the customer. This
issue is explained by the judgment of:
Arab Malaysian Finance Bhd v
Taman Ihsan Jaya Sdn Bhd [2009] 1
CLJ 419; [2008] 5 MLJ 631
Where the court found that, the facility
given is far more burdensome in terms
of the price of the property sold to the
customer. This is because the purchase
price ascertained by the bank does not
reflect the prevalent market value. It is
in fact doubled or may be tripled than
the amount that the customer received
out of selling the property (the amount
of facility given) or even more than the
amount that a customer of conventional
loan has to pay