bayÑ bi thaman Ójil (bba) in house
TRANSCRIPT
BAYÑ BI THAMAN ÓJIL (BBA) IN HOUSE FINANCING AS IMPLEMENTED BY MALAYSIAN
FINANCIAL INSTITUTIONS: A CRITICAL ANALYSIS OF ITS PROCEDURES AND
APPLICATION FROM THE FIQH POINT OF VIEW
BY
AHMAD TARMIDZI AL-MUTTAQI BIN MAHMOOD
INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA
2007
BAYÑ BI THAMAN ÓJIL (BBA) IN HOUSE FINANCING AS IMPLEMENTED BY MALAYSIAN
FINANCIAL INSTITUTIONS: A CRITICAL ANALYSIS OF ITS PROCEDURES AND
APPLICATION FROM THE FIQH POINT OF VIEW
BY
AHMAD TARMIDZI AL-MUTTAQI BIN MAHMOOD
A dissertation submitted in partial fulfilment of the requirement for the degree of Master of Islamic Revealed
Knowledge and Heritage (Fiqh and Usul al-Fiqh)
Kulliyyah of Islamic Revealed Knowledge and Human Sciences
International Islamic University Malaysia
DECEMBER 2007
ABSTRACT
The study reviews and analyzes the facility of BayÑ Bi Thaman Ójil (BBA) in house financing as it is implemented by Malaysian financial institutions from the fiqh point of view. Considering that BBA is the most preferred type of financing mode in the Malaysian Islamic banking industry and considering that it is also the most debated type of facility in terms of its validity and Shariah-compliance, the study reviews and analyzes the structure as well as the implementation of the facility. This is done through a review of the procedures and documentation involved in executing a BBA house financing from the fiqh point of view. Five areas have been identified as involving fiqhÊ concerns and brought into discussion under several sub-topics. These issues are bayÑ al-ÑÊnah (purchase and resale of asset to the same party), bayÑ al-maÑdËm (sale of something which ceases to exist), khiyÉr al-Ñayb (option to rescind the sale contract because of defect), bayÑ wa sharÏ (conditional sale) and the issues of default, early settlement and ibrÉ´ (rebate). The study arrives at the conclusion that even though generally the implementation of BBA in house financing is Shariah-compliant, the issues raised are critical and fundamental and need to be tackled and resolved.
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ملخّص البحث
في تمويل شراء البيتالمستخدمة الماليزية منتجات البنوك الإسلاميةىحدإ هذه الدراسة تناولت
الإسلامية البنوك أآثر المنتجات استخداماً لدى التمويلي المنتج اهذعتبر و ي .البيع بثمن آجل ووه
ذلكلف . ورجال البنوك الإسلاميةمستشارين الشرعيينوأآثرها إثارة للمناقشة لدى ال في ماليزيا
ذه الدراسة تقوم ه ف. هذه البنوكفي ذا المنتجه لدراسة تطبيقاتقويّةهنالك حاجة يرى الباحث أن
وقد .هفيوالعملاء البنوك المنعقدة بين تفاقياتوالإهذا المنتج إجراءات ستطلاع ومراجعة بالا
مثل والتحليل ةقشالمنا تحتاج إلىالتيتبيّن من هذا الاستطلاع والمراجعة بعض القضايا الفقهية
قضية تخلف العملاء عند السداد و،وبيع وشرط ، وبيع المعدوم،العيب وإسقاط خيار،عينةبيع ال
البيع توصّل الباحث من خلال هذه الدراسة المتواضعة أن تطبيقات. السداد المبكرالإبراء عند و
زال ت لا ولكنّها عةموافقة للشريوإن آانت بشكل عام في ماليزيا البنوك الإسلامية لدى بثمن آجل
وتقترح هذه الدراسة بعض التوصيات لتجويد تطبيقات هذا المنتج . إلى الإصلاح والتجويدتحتاج
.من المنظور الفقهي
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APPROVAL PAGE
I certify that I have supervised and read this study and that, in my opinion, it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a dissertation for the degree of Master of Islamic Revealed Knowledge and Heritage (Fiqh and Usul al-Fiqh). ……….…………………………. Mohamad Akram Laldin Supervisor I certify that I have read this study and that, in my opinion, it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a dissertation for the degree of Master of Islamic Revealed Knowledge and Heritage (Fiqh and Usul al-Fiqh). ………………………………….. Azman Mohd. Noor Examiner This dissertation was submitted to the department of Fiqh and Usul al-Fiqh and is accepted as a partial fulfilment of the requirements for the degree of Master of Islamic Revealed Knowledge and Heritage (Fiqh and Usul al-Fiqh). ………………………………….. Mek Wok Mahmud Head, Department of Fiqh and Usul al-
Fiqh
This dissertation was submitted to the Kulliyah of Islamic Revealed Knowledge and Human Sciences and is accepted as partial fulfilment of the requirements for the degree of Master of Islamic Revealed Knowledge and Heritage (Fiqh and Usul al-Fiqh). ………………………………….. Hazizan Md. Noon Dean, Kuliyyah of Islamic Revealed
Knowledge and Human Sciences
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DECLARATION
I hereby declare that this dissertation is the result of my own investigations, except
where otherwise stated. I also declare that it has not been previously or concurrently
submitted as a whole for any degrees at IIUM or other institutions.
Ahmad Tarmidzi Al-Muttaqi Mahmood Signature……………………………… Date…………………………
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INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA
DECLARATION OF COPYRIGHT AND AFFIRMATION
OF FAIR USE OF UNPUBLISHED RESEARCH
Copyright © 2007 by Ahmad Tarmidzi Al-Muttaqi Mahmood. All rights reserved
BAYÑ BITHAMAN ÓJIL (BBA) IN HOUSE FINANCING AS IMPLEMENTED
BY MALAYSIAN FINANCIAL INSTITUTIONS: A CRITICAL ANALYSIS OF ITS PROCEDURES AND APPLICATION FROM THE FIQH POINT OF
VIEW
No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below.
1. Any material contained in or derived from this unpublished research may only be used by others in their writing with due acknowledgement.
2. The IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.
3. The IIUM library will have the right to make, store in a retrieval system and supply copies of this unpublished research if requested by other universities and research libraries.
Affirmed by Ahmad Tarmidzi Al-Muttaqi Mahmood ……………………………. ……………………… Signature Date
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ACKNOWLEDGEMENTS
Praise be to Allah, the Most Beneficent and Most Merciful for the blessings and mercy that He has given. On this note, I wish to express my sincere gratitude and thanks to those who have contributed and assisted directly and indirectly in completion of this study.
First and foremost, my appreciation goes to my respected and knowledgeable lecturers at the Kulliyyah of Islamic Revealed Knowledge and Human Sciences especially my supervisor Asst. Prof. Dr. Mohamad Akram Laldin, Prof. Dr. Sano Kotoub Moustapha, Prof. Dr. Arif Ali Arif, Assoc. Prof. Dr. Muhammad Amanullah, Prof. Dr. Salih Qadir Kareem Hasan Al-Zanki, Asst. Prof. Dr Azman Mohd. Noor and others who are not mentioned here for their teaching and guidance during my studies at the International Islamic University Malaysia.
I would also like to express my sincere gratitude and thanks to both of my parents Tuan Haji Mahmood Ismail and Puan Hajjah Mainon Shahadan, brothers, sisters and friends for their motivation and support in completing this study. Last but not least, my appreciation goes to my colleagues and superiors at work for their assistance and input in completing this study.
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TABLE OF CONTENTS
Abstract…………...………………………………………………………………. ii Abstract in Arabic..……………………………………………………………….. iii Approval Page..….………………………………………………………………... iv Declaration Page.…………………………………………………………………. v Copyright Page...………………………………………………………………….. vi Acknowledgements...……………………………………………………………… vii CHAPTER 1: INTRODUCTION…………………………………………………. 1
Introduction……....………………………………………………………… 1 Research Questions……..………………..………………………………... 2 Objectives of the Study…..…..…………………………………………… 2 Necessity of the Study..……..…………………………………..………… 3 Scope of the Study……………..………………………………………….. 3 Literature Review …………………..……………………………………... 4 Research Methodology…………………..………………………………… 12
CHAPTER 2: SHARIAH BACKGROUND OF BBA……………………………. 14 Introduction…………………………………..……………………………. 14 Definition of BayÑ Bi Thaman Ójil(BBA)………..………..………………. 14 Legitimacy of BBA…………………………………..……………………. 19 General Conditions in Transacting BBA………………..…………………. 27
CHAPTER 3: IMPLEMENTATION OF BBA HOUSE FINANCING IN MALAYSIAN FINANCIAL INSTITUTIONS..………………………………….. 32
Introduction…………………………………………………..…………….. 32 Procedures and documentation involved in BBA House Financing……..… 33 Documents involved in transacting BBA house financing………………… 40 Other Matters……………………………………………………………… 54
CHAPTER 4: FIQH VIEWS ON ASPECTS OF BBA HOUSE FINANCING AS IMPLEMENTED BY MALAYSIAN FINANCIAL INSTITUTIONS………….. 67
Introduction………………………………………………………………… 67 Purchase and Resale of the Asset (BayÑal-ÑÊnah)………………………..... 68 Sale of Houses Under Construction (BayÑ al-maÑdËm)……………….…... 83 Option of Defect (KhiyÉr al-Ñaib)…………………..……………….…….. 87 Conditional Sale (BayÑ wa sharÏ)………………………………..…..…….. 92 Default, Early Settlement and Ibra´………………………………………... 99
CONCLUSION…………………………………………………………………….. 109 BIBLIOGRAPHY………………………………………………………………….. 113 APPENDIX I: Property Purchase Agreement..……………………………………. 117 APPENDIX II: Property Sale Agreement ………………………………………… 147 APPENDIX III: Form 16A and Annexure………………………………………….192
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CHAPTER ONE
INTRODUCTION INTRODUCTION
BayÑ Bi Thaman Ójil (deferred payment sale), or better known as BBA, is perhaps the
most popular product used by Malaysian financial institutions in providing financing
facilities to their customers. Throughout the years, from the establishment of the first
Islamic bank in Malaysia in 1983 untill today, this method of financing has been
widely used especially in providing home financing to customers.
According to the Bank Negara Malaysia (BNM) Annual Report 2005, the total
financing given by Islamic banking institutions based on the BayÑ Bi Thaman Ójil
concept remained dominant, constituting 40.7% of total financing.1 It could be said
that BBA has played a vital role in the development and success of Islamic banking in
Malaysia. Through this product, Muslims as well as non-Muslims are able to
purchase assets such as houses and land without being involved with ribawÊ (interest
based) loans which are declared as one of the greatest sins in Islam.
However, since the implementation of BBA in the Malaysian Islamic banking
industry and moreover since some amendments were made in its procedures in the late
1990’s, a large number of criticisms have been made regarding its legitimacy from the
fiqh point of view. It has been said that the processes and procedures involved in its
application are un-Islamic and merely tricks (ÍÊlah fiqhiyyah) to legitimize interest.
1 Bank Negara Malaysia Annual Report 2005, 167.
1
Realizing this scenario, this research is conducted to address the issues by studying
and analyzing the processes and procedures, including the legal documents and
agreements made during the execution of BBA from the fiqh point of view.
As BBA is most popular in house financing and to maintain precision and focus, the scope of
application of BBA covered in this study will be confined to BBA house financing. This is also due to
the fact that BBA house financing is comparatively the most popular facility granted under BBA.2
RESEARCH QUESTIONS
Among the questions this research intends to answer are:
i. What are the processes and procedures involved in executing a BBA
contract in house financing?
ii. What are the fiqh viewpoints in analyzing the nature of these processes
and procedures?
iii. Is the practice of BBA in house financing in Malaysia valid from the fiqh
point of view?
iv. What is the evidence or justification in supporting the validity or invalidity
of the practice of BBA in house financing?
v. If any, what are the suggestions or modifications that could be made to
improve the practice of BBA from the fiqh point of view?
2 Mohd. Daud Bakar, Contracts in Islamic Commercial and Their Application in Modern Islamic Financial System, 28. <http: http://www.cert.com.my/cert/pdf/CONTRACT.PDF> (accessed 29 June, 2006).
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OBJECTIVES OF THE STUDY
The main objective of the study is to produce a clearer picture of the current practice
of BBA in house financing in Malaysia and analyzing it from the fiqh point of view.
Indirectly, this will clarify the status of the practice from the fiqh point of view. If
there are any loopholes or flaws that affect the validity of the practice, practical and
executable suggestions will be made to rectify them. The intended final outcome of
the study is to have a Shariah approved, well accepted (with respect to the recognized
different Shariah opinions) proposed model of BBA to be applied in house financing
by Malaysian financial institutions.
NECESSITY OF THE STUDY
The study is, indeed, of great necessity as the practice of BBA in the Malaysian
Islamic banking industry represents the largest mode of Islamic financing applied by
the financial institutions. Hence, the soundness and validity of this mode of financing
is crucial. This is what makes a thorough and objective study or evaluation of this
particular mode of financing, indeed, a great necessity. This is also due to the fact that
most of the literature made either condemning or supporting the practice of BBA, was
not written in such detail and often lacks objectivity.
SCOPE OF THE STUDY
The scope of this study will be on the current practice of BayÑ Bi Thaman Ójil (BBA)
in Malaysian financial institutions, be it the full-fledge Islamic financial institutions or
the conventional financial institutions operating Islamic banking business through
their ‘Islamic windows.’
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The study will also limit itself to the practice of BBA in house financing which
is the largest area where it is practiced. Other areas of financing where BBA is also
used such as car financing or in BBA bonds will not be covered in this study. Even
though the practices of BBA in these other fields are quite similar, the study will only
focus on BBA in house financing to maintain precision and focus.
LITERATURE REVIEW
As mentioned earlier, a lot has been written on the practice of BBA since it is very
popular in the Malaysian context. However, at the time of writing this dissertation,
the writer could not find any detailed writing specifically discussing BBA’s mode of
operation from the fiqh perspective and addressing the fiqhÊ issues being raised
regarding the product. Most of the writings found, either discuss it in general or rather
focus on other aspects of it such as its performance, benefits or its comparison with
the conventional mode of house financing.
However, some of the literature which is found to be helpful and informative is
the following:
i. Urus niaga Al-BaiÑ Bithaman Ajil dalam Mekanisme Pembiayaan Tanpa
Riba (The Contract of al-BayÑ Bi Thaman Ójil in Interest-Free Financing
Scheme), Osman Sabran, Universiti Teknologi Malaysia, Johor Darul
Takzim, 2000.
This book covers quite well both aspects; fiqh and the operational
side of a BBA. Focus was not given to any particular asset financed
through this mode of financing. The study has been conducted on a few
financial institutions such as Bank Islam Malaysia Berhad, Bank
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Bumiputera Malaysia Berhad, Malayan Banking Berhad, Abrar Finance
Berhad and the Housing Loan Unit, Government of Malaysia.
The writer noted a few issues in the procedures of BBA and gave a
few suggestions on how to resolve them. However, these suggestions
were too brief and vague. This is what the proposed study intends to
elaborate on. Most of the information given, especially on the procedures
of BBA, was also not properly referred to, which can cause a lack of
credibility in the arguments made.
ii. Pembiayaan Perumahan Secara Islam: Antara Nilai Komersial dan
Tanggungjawab Sosial (Islamic Home Financing: Between Commercial
Value and Social Responsibility), Fadzila Azni Ahmad, Utusan
Publications and Distributor, Kuala Lumpur, 2003.
In this book, the writer talks about the application of BBA in house
financing as applied by Bank Islam Malaysia Berhad (BIMB). The focus
of the study is on the profit rate and the instalment payment involved in
home financing done through the contract of BBA. A comparison
between Islamic and conventional home financing on this aspect was also
made.
However, while describing the processes and procedures involved
(which is the focus of the proposed study), it is noted that there are some
inconsistencies in the information given with the current practice. This is
probably due to the changes of procedures made by the bank and the
outdated information obtained by the writer.
Another important aspect of the study made by the writer concerns the
opinion of the Shariah Advisory Council of the BIMB on the application
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of BBA in home financing. A number of aspects of the legality of the
contract have also been addressed by the writer.
iii. The Role of Khiyar Al-‘Ayb In Al- BayÑ Bithaman Ójil Financing, Saiful
Azhar Rosly, Mahmood Sanusi and Norhashimah Mohd Yasin,
International Journal of Islamic Financial Services, Vol. 2, No. 3.
The article addresses specifically the issue of khiyÉr al-‘ayb
(option of defect) in BBA financing. Quoting examples of BBA home
financing, the writers point-out the absence of khiyÉr al-‘ayb in BBA,
which is a significant element in a sale contract. According to them, this
is evident in the provision stated in the Property Purchase Agreement
(PSA) where the bank is exempted from any liability pertaining to any
defects in the house. The writers conclude that a sort of legal device
(ÍÊlah fiqhiyyah) is made to affect BBA.
Nevertheless, it is felt that a more in-depth study on the nature of
khiyÉr al-‘ayb and the rules regarding it is still needed. This is especiallt
so, when such a negative conclusion was made on the application of BBA.
A more objective discussion which includes the views and arguments of
the other party i.e. the Islamic financial institutions practicing BBA should
be conducted. This is one of the issues that will be addressed in the
proposed research.
iv. “BayÑ al-murÉbaÍah li al-Émir bi al-shirÉ´ kamÉ tujrÊhi al-maÎÉrif al-
islÉmiyyah: dirÉsah fi al-nuÎËÎ wa al-qawÉÑid al-sharÑiyyah” (The
Contract of MurÉbaÍah to the Orderer as Implemented by Islamic
Financial Institutions: A Study From The Viewpoint of the Text and
Shariah Maxims), YËsuf Al-QarÌÉwi, Maktabah Wahbah, Cairo, 1987.
6
In this book, the writer discusses on the current implementation of
the contract of murÉbaÍah in Islamic financial institutions. The writer
starts by stating a number of decrees and rulings made by a few
conventions and scholars on the legitimacy of the practice of murÉbaÍah li
al-Émir bi al-shirÉ´. He then states some guidelines on the nature of
Islamic commercial law. Then, he defends the practice and rebuts certain
allegations made against the legitimacy of the practice.
The significance of this book to the purpose of the present study is
that BBA was originally initiated based on bayÑ al-murÉbaÍah. Until the
present moment, bayÑ murÉbaÍah is very synonym to BBA. In this sense,
a study on the relation of both contracts is much needed. As the book was
written in 1987, it is also important that a cross-check be made on the
current practice of bayÑ al-murÉbaÍah and the practices described in the
book.
v. Islamic Banking: Case Commentaries Involving Al-BayÑ Bithaman Ójil,
Dr. Norhashimah Mohd Yasin, (1997) 3, Malayan Law Journal.
This article is basically a case commentaries involving particularly
BayÑ Bi Thaman Ójil (BBA) in Malaysia. Two cases i.e Bank Islam
Malaysia Bhd v Adnan bin Omar and Dato’ Hj Nik Mahmud bin Daud v
Bank Islam Malaysia Bhd which involve BBA are presented in the article.
This article is essential as it discusses BBA from the legal
perspective. As it is well known, Shariah pays great attention to the legal
perspective of a contract as it is the law that describes and gives the true
picture of a contract.
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vi. Hukm bayÑ al-taqsÊÏ fi al-SharÊÑah wa al-qÉnËn, (Ruling on Instalment-
Sale from the Shariah and Legal Perspective) Dr. MuÍammad ‘Aqlah al-
IbrÉhÊm, Maktabah Al-RisÉlah Al-×adÊthah, Amman, 1987.
This book, which was written in 1987, discussed the ruling of bayÑ
al-taqsÊÏ, or instalment-sale, from the Shariah and legal perspectives.
Generally, the concept of bayÑ al-taqsÊÏ is similar to BBA as it involves
price increment from deferred payment. The book is very relevant
especially as it analyzes a number of fiqhÊ issues at great length and is
based on recognized fiqhÊ textual references.
vii. Al-Bai Bithaman Ajil Financing: Impact on Islamic banking performance,
Saiful Azhar Rosly, Thunderbird International Business Review, Vol. 41
(4/5), 1999.
This paper discusses the performance of Islamic banks in a high
interest rate regime, the salient features of BBA and the relationship
between interest rates in loans and profit rates in BBA during periods of
interest rate volatility.
This study’s concern is on the second part which is the salient
features of BBA. However, it is noted that the procedures involved in
transacting BBA are different from the current practice since in the
procedures presented, the novation agreement is still used.
Saiful Azhar, in this article, commented on the arrangement made
between the customer, developer and the bank. According to him, the role
of the bank as a trader, namely the buyer of property from the vendor and
seller of the same property to the customer, is somewhat clouded and
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misconstrued. This is because a sale and purchase agreement between the
bank and the vendor or developer is relatively absent.
He asserted that the role of the Islamic bank as a financier is most
revealing (rather than a trader) under this state of affairs. He went on to
say that if the Islamic bank desires to embrace the spirit of al-bayÑ, as the
Quran has rightfully intended, it must hold the risk of possession of the
property before resale.
One of the conclusions made by the author is that the Islamic bank
should venture into the construction business itself rather than assuming
the role of a trader as direct production activity produces higher profit.
viii. Islamic/ Interest-Free Banking in Malaysia: Some Legal Considerations,
Mohd Illiayas, [1995] 3 Malayan Law Journal.
This is another important paper on Islamic banking in Malaysia
written by one of the renowned lawyers in the Islamic banking industry.
Perhaps because BBA is considered as the most commonly used financing
facility, the writer discusses a lot of legal issues pertaining to BBA in this
paper.
The writer asserted that the existing legal framework in the
implementation and the enforcement of Islamic banking documents in
Malaysia is glaringly inadequate. He then cited one specific case
involving BBA which is Bank Islam Malaysia Bhd v Adnan bin Omar.
The writer, in the paper, highlighted four particular issues in the BBA
transaction. Firstly, on the interest in the property being transacted, he
raised the question of what type of (legal or beneficial) interest or the
extent (complete or partial) of interest the customer should have in the
9
property before he can enter into an agreement to sell it to the financier in
order to receive the facility amount.
Indirectly, while discussing this, the writer explained the process
involved in transacting a BBA. Since the paper was written in 1995, it is
noted that the “novation agreement” was still in use at that time.
Secondly, the writer raised the issue of the recovery of the
balance of the sale price upon default. It was argued that the bank should
be stopped from recovering the full balance of the sale price before the
expiry of the period and should be permitted to make a claim only for
unpaid instalments.
Thirdly, the writer brought up the issue of certain banks
stipulating in their documents that they will be entitled to obtain adequate
compensation from the customer in the event that their cost of funds
increases. Lastly, there is the issue of to what extent the rule in Re
Connolly Bros Ltd (No 2) applies? The principle laid down in the case
was that a restriction on a company’s power to create subsequent prior
ranking charges, contained in a debenture creating a floating charge, does
not affect a charge created over a property to secure financing with which
the purchase price of that property is paid by the company.
ix. Masalih Mursalah: Its Application in Malaysian Islamic Banking and
Finance: A Case Study on BBA (Bai’ Bithaman Ajil), Yasmin Hanani
Mohd. Safian and Amir Shaharuddin, (2004), a paper presented at the
National Seminar on Usul Fiqh organized by Kolej Universiti Islam
Malaysia on 15-16 December 2004.
10
Basically, the authors attempt to study the application of maÎÉliÍ
mursalah (one of the principles of Islamic jurisprudence) in BBA. They
started by discussing the meaning of maÎÉliÍ mursalah and guidelines in
applying the principle.
Then they went on to describe the modus operandi of BBA in
Malaysia as well as the documents involved in executing it. Lastly, they
tried to answer whether the principle of maÎÉliÍ mursalah adopted in BBA
is justified or not.
The authors succeeded in raising a number of fiqh issues in BBA
such as the role of the bank as a financier, the issue of khiyÉr ÑaÊb (option
of defect) and a few other issues. The authors also claimed that the
practice of BBA in Malaysia involves ÍÊlah (legal trick) by conducting
transactions involving usury or ribÉ’.
However, the authors did not manage to establish the premise
that the practice of BBA is based on maÎÉliÍ mursalah. This is probably
their assumption on the practice of BBA in Malaysia. Some other
statements made by the authors can also be questioned as they lacks
precision.
x. Islamic Banking Practice From The Practitioner’s Perspective, Bank
Islam Malaysia Berhad, Kuala Lumpur, 1994.
This book was published by Bank Islam Malaysia Berhad, being
the first Islamic bank in Malaysia. The publishing of the book aims to
educate the public and present the practitioner’s perspective on the
operation of Islamic banking. Among the products discussed in this book
is, of course, BBA.
11
The book talks about the procedures involved in transacting a
BBA, the purpose, margin of profit and mode of payment. Even though,
the discussion on the practice of BBA in the book is rather insufficient and
on superficial, the book still serves as an important reference since it was
published by one of the leading banks in Islamic banking.
RESEARCH METHODOLOGY
This study comprises library based and field research. Hence, it is theoretical and
practical in nature. The research methodology of this study is based on primary and
secondary data available. For the primary data, agreements, offer letters and other
legal documentation used in executing BBA at banks will be studied. Other than that,
banks product manuals and operating procedures will also be the source of primary
information for the study. However, it should be noted that the study will not limit
itself to any particular financial institution in Malaysia. Sample documents will be
taken only from a few financial institutions which will not be named since it is found
that in principal, the documents and procedures applied by the financial institutions
are identical.
Literature and academic texts on the application of BBA, on the other hand,
will be the secondary data used. This literature comprises published journals,
periodicals, books, theses, unpublished articles and internet resources, in either
English or Arabic. This research involves the following methods:
i. Descriptive methods
This method is used to explain the BBA contract as implemented
by the financial institutions in Malaysia including its nature and the legal
procedures involved in it.
12
ii. Inductive and deductive methods
The researcher applies both the inductive and deductive methods
that help to thoroughly examine the views and arguments of the
contemporary as well as traditional Muslim scholars on BBA and other
matters related to it, as recorded in their writings.
iii. Analytical method
This method is used to analyze the procedures involved in
executing a BBA contract and their legal effect on the obligations and
liability of the contracting parties. These findings would then will be
compared and reviewed in the light of the Islamic commercial law, the
Shariah.
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CHAPTER TWO
SHARIAH BACKGROUND OF BBA INTRODUCTION
BayÑ Bi Thaman Ójil (BBA) can be considered as the most popular mode of Islamic
financing practiced by financial institutions in Malaysia. According to the Bank
Negara Malaysia (BNM) Annual Report 2005, total financing given by Islamic
banking institutions based on the BayÑ Bi Thaman Ójil (deferred payment sale)
concept remained dominant, constituting 40.7% of total financing.3 A look at the first
Islamic bank in Malaysia i.e. Bank Islam Malaysia Berhad (BIMB) annual report also
confirms this fact where out of RM 10.350738 billion financing given by BIMB, RM
6.773866 (65.44%) is given based on BBA.4
This chapter will discuss the Shariah background of BBA including the
definition of BBA, its legitimacy in fiqh and some general fiqh rulings on executing a
BBA. The general literature as well as a theoretical review of BBA from traditional as
well as contemporary writings will be discussed in this chapter to provide a
background before a deeper analysis is made in the coming chapters.
DEFINITION OF BAYÑ BI THAMAN ÓJIL (BBA)
Literally, BayÑ Bi Thaman Ójil means sale on the deferred payment of price’ or
‘deferred payment sale.’ This type of sale, where the price is deferred, is also known
as bayÑ al-mu´ajjal, bayÑ bi al-nasÊ’ah, bayÑ al-ta’khÊr and bayÑ bi al-ta’jÊl wa al-
3 Bank Negara Malaysia Anual Report 2005, 167.
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taqsÊÏ.5 In Bangladesh, it is termed bayÑ muazzal.6 BBA can also be categorized as a
credit sale and if the payment is made by instalments, it is called bay al-taqsÊÏ.
A few attempts have been made to define BBA technically. Among the
definitions given by the scholars are as follows:
i. Sale of goods on a deferred payment basis at a price, which includes a
profit margin agreed to by both parties.7
ii. The al-BayÑ Bi Thaman Ójil is an agreement whereby the bank sells a
property to the customer permitting the customer to pay the sale price on
deferred basis and normally by periodic instalments.8
iii. It is basically a trade-deal in which the seller allows the buyer to pay the
price of a commodity at a future date in a lump sum or by instalments.9
iv. A contract for financing sales by deferred instalments.10
v. A contract of exchange whereby the commodity is delivered immediately
and the price is paid by instalments.11
vi. Sale of an object against an obligation to provide payment at a future
time.12
4 BIMB Annual Report 2005, 34, <http://www.bankislam.com.my/bimb_pdf/AnnualReportBIMB2005.pdf > (accessed 29 June, 2006). 5 Norhashimah Mohd Yasin, “Bay’ Bithaman Ajil (BBA): Sale Or Loan Contract?,” in Syed Ahmad Idid (ed.), Judicial Decisions Affecting bankers and Financiers, (Kuala Lumpur: LexisNexis, 2003), 660, Ab. Mumin Ab. Ghani, Sistem Kewangan Islam dan Pelaksanaannya di Malaysia, (Kuala Lumpur: Jabatan Kewangan Islam Malaysia, 1999), 417, RafÊq YËnus al-MaÎrÊ, Bay’ al-TaqsÊÏ, (Damascus: DÉr al-Qalam, 1997), 15. 6 Norhashimah Mohd Yasin, “BayÑ Bithaman Ajil (BBA): Sale Or Loan Contract?,” 660. 7 Bank Negara Malaysia, via <http://www.bnm.gov.my/index.php?ch=174&pg=467&ac=368> (accessed 29 June, 2006). 8 Mohd Ilyas, “Islamic/Interest-Free banking in Malaysia: Some Legal Considerations,” [1995] 3 MLJ, cli. 9 Ziauddin Ahmad, “Islamic Banking at Crossroads”, Journal of Islamic Economics, vol. 2, no. 1, Jan. 1989, p. 31. 10 Saiful Azhar Rosly, “Al-Bay’ Bithaman Ajil Financing: Impacts on Islamic Banking Performance,” Thunderbird International Business Review, vol. 41 (4/5), (1999): 463. 11 Abou Bacar Abdullah Senghore, “The Principal of Al-Bai Bithaman Ajil (Deferred Payment Sale) As Practised By the Islamic Bank of Malaysia And Other Banks,” (MA dissertation, International Islamic University Malaysia, 1995), 38.
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