ISB 542CONTRACT OF SALE (AL-

BAY’)

AMIR EMME NURRAHIM BIN ABDUL RAHIM2013283428MOHAMAD NASRUL FIRDAUS BIN YUSOF2013277978NOOR AMIRA BINTI RAMLI2013694044NOOR EFFA RIZAN BINTI RUSDI2013410822

D2BM2493A

Group

Group Member’s Name

Definition of Contract Sale

Literally: to conjunct, to tie, to knot, to contract and etc. Means: ‘Aqd is a contract between to parties on a particular subject matter which is to be concluded upon offer( Ijab) and acceptance (Qabul) of the parties.

“O you who believe! Fulfill contractual obligation” (Al-Maidah verse 1)

Contract (Aqd)

• Bay’’ refers both to the activities of buying & selling- derived from the term ba’ (for arm) because one extends one’s arm to give or to take.• Means: Exchanging property for property, property for money or money for property upon mutual consent among the contracting parties.- Al-Baqarah 175

-Al-Nisa’ 29

Sale (Bay’)

Concept Buying and Selling

AL-QURAN

“But Allah has permitted trade” (2:275) “But take witnesses whenever you make a commercial contract” (2:282) “But let there be among you traffic and trade by mutual good will” (4:29), “It is no crime for you to seek the bounty of your Lord” (2:198)

The Prophet was asked: “Which are the best forms of income generation ?”. He replied: “A man’s labor, and every legitimate sale”. Another saying is: “A sale must be by mutual consent”. Another Hadith, He said: “The truthful and honest trader is among the prophets, the righteous, and the martyrs”

AL-SUNNAH

PERMISSIBLE BY ISLAM

PILLARS OF SALE

ELEMENT OF BAY’

SELLERS and

BUYERS

ITEM SOLD

PRICE CONTRACT (‘AQAD)

CONDITIONS OF PILLARS

SELLER and

BUYER

1. Capable of taking

responsibilities

2. Not prohibited from dealing with their properties

3. No coercion

Al-Nisa’: 5 & 6Al-Nisa’: 5

Al-Isra’: 26 & 27

Surah Al-Nisa’ : 29

ITEM SOLD

Must exist

Must pure (Halal) according to

Shari’ahMust have use

according to Shari’ah

Al-Israk: 27

Surah Al-Maidah: 88And eat of the things which is Allah has

provided for you, lawful and good and fear Allah in Whom you believe. Surah Al-Maidah: 3 &

90

CONDITIONS OF PILLARS

Hadith (ABU DAUD & TARMIZI) :

No (illegal) trade in goods unless you have.

ITEM SOLD

Must be known n specific by address,

description or specification

Must be capable of being delivered &

free from encumbrances

Must be owned by seller

Hadith (ABU DAUD & TARMIZI) : no (illegal) trade in goods unless

you have.

Hadith (MUSLIM) : The Prophet prohibite us to make any contract

that include gharar (ambiguity)

CONDITIONS OF PILLARS

CONDITIONS OF PILLARS

PRICE

Must be in known currency

Must be in absolute amount

Monetary system

Barter trade

CONTRACT (‘AQAD)

Offer & acceptance must be absolute and in definite and decisive language

The acceptance must agree with the offer

Not be conditional

Not be fixed to a certain

time/limited period

Must be in the present/past tense

Offer & acceptance must be made at 1 &

same meetingSurah al-Nisa: 29

CONDITIONS OF PILLARS

Type Of Sale (Bay’)

5. Bay’ Bithaman

Ajil

6. Bay’ al-Inah

7. Bay’ al-Murabahah

8. Bay’ al-Musawamah

9. Bay’ al-salam

10. Bay’ al-Dayn

2. Bay’ al-Wadiah

11. Bay’ al-Istisna’

4. Bay’ al-Istijrar

1. Bay’ al-Tawarruq 3. Bay’ al-Tawliyah

1.Bay’ Bithaman Ajil

Bay’ means ‘sale’, Bi means ‘with’, Thaman means ‘prices’. It is refer to sale with deferred payment of the price.

Known as Bay’ al-Mu’ajjal or Bay’ al-Taqsit. It is valid if the period of settlement of the price is fixed without any ambiguity or uncertainty..

Basis lump sum or instalment

Definition

Permissibility of

Bay’ Bithaman Ajil

It is permissible by Islam

Mejelle (Article 245)Reported By Bukhari

Aplplication Bay’ Bithaman Ajil in

Islamic Finance

Normally be applied in the house financing and vehicle where the purpose of financing is commonly for assets acquisition (proses beli barang in same other way)

Ex:

“The propet (s.a.w) bought foodstuft on credit from a jew and give him shield in mortgage”

“A sale for a deferred payment or payment by instalments is good”

Bay’ Bithaman Ajil Riba al-NasiahOnly method for payment of in a sale and purchase transaction.

Occur when the debtor request some time to repay the debt to the creditor.

The price is fixed at the conclusion of transaction that be paid by deferred basis.

The original prices or loan is fixed in onset.

Prices remain same if the buyer make the full settlement: • At the maturity date• Before the maturity date unless seller decide to give Ibra’ (rebate/waiver).

Prices remain same if debtor make the full settlement:• At maturity date • But will increase if debtor default to repaying the loan at the maturity date.

No extra charges. Extra charges (interest) for required extra time.

Issue: Whether Bay’ Bithaman Ajil OR

Riba Al- Nasiah are the same

Differences between Bay’ Bithaman Ajil and Riba al-Nasiah

2.Bay’ Al -Inah

Definition

Defined as double sale involving “buy-back”.

Debtor and creditor sell and resell a assets

between them which is once for cash and once

for higher price on credit.

For example Ibn Qudama says 2

Scholar of Hanafi, Imam Malik , Ahmad and some of scholar Shafi’i School.

Sale is forbidden

Imam Shafi’i, Abu Yusuf and some scholar of Shafi’I School.

Sale is not contradictory to Shari’ah principles

Many Muslim jurist consider it as prohibited because it is open door to Riba (back door Riba or Hiyalah ila Riba)

Different views of Muslim Scholar in Bay’ Al-Inah

Permissiblity of Bay’ Al-Inah

Debtor and creditor is know their purpose to do the Bay’ Al-Inah but there is no sign of it in contract.

The parties are desirous of entering the following:

1.Assets Sales Agreement which is Bank shall sell Assets to the customer that free from burden at the Asset Sale Price payable by customer to the bank on deferred term (credit)

2.Subject Matter which is Assets by Bank to the customer according Assets Sale Agreement

1.Contract concluded of Manner :

2.Contract are independently concluded:

Tenet of Valid Bay’ Al-Inah contract based on

Shafi’i point of view

Commodity: Crude palm

oil

Cost Price: RM100,000

3.Bay’ Murabahah ( cost+profit

Definition

Sale of commodity whereby price have addition of the stated profit. The price is decided by seller or owner and be agreed (mutual) by buyer.

By way of Bai Murabahah: the sale price is RM130,000

RM100,000 + RM30,000(profit)]

Illustration

Permissibility of Bay’

Murabahah

It is form of sale that permissible or acceptability by virtue of the generality of the above Qur’anic verses.

Allah says in Qur’an:

“But Allah has permitted trade” (2:275)

“But let there be among you traffic and trade by mutual good will” (4:29)

Seller disclose the actual price of commodities together with profit that have been added thereon to the buyer

ulama’ jumhur stated the commodities that have any defective cannot be sell according murabahah until justified it.

Basics condition:

BAY’ AL-MUSAWAMAH(BARGAIN SALE)

A sale in which the seller is not obligated to disclose the price paid to obtain the goods.

While the seller may or may not have full knowledge of the cost of goods being negotiated with the purchaser, the seller is under no obligation to reveal the cost of the goods to the

purchaser as part of the negotiation process.

DEFINITION

BAY’ AL-MUSAWAMAH(BARGAIN SALE)

Permissible by virtue of the generality of the Quran on the

permissibility of trade

Surah Al-Baqarah: 275“But Allah has permitted

trade”.Surah Al-Nisa’: 29

“But let there be among you traffic and trade by mutual

goodwill”.

PERMISSIBILITY

BAY’ AL-MUSAWAMAH(BARGAIN SALE)

2. PURCHASE ORDER

4. SUPPLIES G & S

3. Settles the purchase price 6. Settle the Bank’s selling price on installment basis

5. Sells goods on deferred payment basis

SUPPLIER OF GOODS/

COMMODITY

CUSTOMER

BANK

APPLICATION IN ISLAMIC FINANCE

1. Bank appoints Customer as its agent

BAY’ AL-SALAMDEFINITION

An agreement whereby payment is made immediately while the goods are delivered at an agreed later date.

It is equivalent to an advance payment

The delivery of the goods is made in the future while the price needs to be settled on the spot

Permissible in Shari’ah

Narrated by Ibn Abbas that Prophet Muhammad and the

people used to pay in advance the price of fruits to be delivered within 2 to 3 years. (Bukhari)

Surah Al-Baqarah: 282

BAY’ AL-SALAMPERMISSIBILITY

BAY’ AL-SALAM

CONDITION

The buyer needs to pay to the

seller the price in full at the time of executing Bay’ Al-

Salam contract

Can be affected in those commodities

the quality and quantity of which can be specified

The quantity and quality of the

commodity needs to be specified at

the time of executing BS

contract so as to avoid any dispute

in the future

The date and place of delivery must be

specified Surah Al-A’raf:

85

BAY’ AL-SALAM

• APPLICATION

Buyer pay agreed price today to seller

Seller delivers goods to buyer after 3 months

BUYER SELLER

Surah al-Maidah: 1O you who believe! Fulfill

(your) obligations. ...

BAY’ AL-DAYN

Sale of debt that is created under Shari’ah compliant business activities.

DEFINITION

BAY’ AL-DAYN

REQUIREMENT

A debt must have been created through a contract

of deferred payment of sale of goods or service

The goods must have been delivered or the service must

have been rendered

The trading of the debt must be on cash terms in order to avoid the prohibition, on Bay’ al-Kali bi’l-Kali (sale of debt for debt)

Surah Al-Baqarah: 282O you who believe! When you contract

a debt for a fixed period, write it down...

Surah al-Maidah: 1O you who believe! Fulfill

(your) obligations.

AL-QURAN’S TRANSLATION

Al-Nisa’: 5And give not unto the foolish your property which Allah has made a

means of support for you , but feed and clothe them therewith, and speak to them words of kindness and justice.

Al-Nisa’: 6And try orphans (as regards their

intelligence) until they reach the age of marriage; if then you find sound

judgement in them, release their property to them, but consume it not wastefully,

and hastily fearing that they should grow up, and whoever amongst guardians is

rich, he should take no wages, but if he is poor, let him have for himself what is just and reasonable (according to his work). And when you release their property to

them, take witness in their presence; and Allah is All-Sufficient in taking account.

Al-Nisa’: 29O you who believe! Eat not up

your property among yourselves unjustly except it be a trade

amongst you, by mutual consent. And do not kill yourselves (nor kill one another). Surely, Allah

is Most Merciful to you.

AL-QURAN’S TRANSLATION

Surah Al-Maidah: 90O you who believe! Intoxicants (all kinds of

alcoholic drinks), gambling, Al-Ansab , and Al-Azlam (arrows for seeking luck or decision) are an abomination of Shaitan's (Satan) handiwork. So avoid (strictly all) that (abomination) in order

that you may be successful .

Surah Al-A’raf: 85...Verily, a clear proof (sign) from your Lord has come unto you; so give full measure and full weight and wrong not men in

their things, and do not mischief on the earth after it has been set in order, that will

be better for you, if you are believers.

Surah Al-Maidah: 3Forbidden to you (for food) are: Al-Maytatah (the dead animals - cattle-beast not

slaughtered), blood, the flesh of swine, and the meat of that which has been slaughtered as a sacrifice for others than Allah, or has been slaughtered for idols,

etc., or on which Allah's Name has not been mentioned while slaughtering, and that which has been killed by strangling, or by a violent blow, or by a headlong fall, or by the goring of horns - and that which has been (partly) eaten by a wild animal - unless

you are able to slaughter it (before its death) - and that which is sacrificed (slaughtered) on An-Nusub (stone altars). (Forbidden) also is to use arrows seeking luck

or decision, (all) that is Fisqun (disobedience of Allah and sin).

AL-QURAN’S TRANSLATION

Surah Al-Baqarah: 275Those who eat Riba (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaitan (Satan) leading him to insanity. That is because they say: "Trading is

only like Riba (usury)," whereas Allah has permitted trading and forbidden Riba (usury). So whosoever receives an admonition from his Lord and stops eating Riba (usury) shall not be

punished for the past; his case is for Allah (to judge); but whoever returns [toRiba (usury)], such are the dwellers of the Fire - they will abide therein.

Al-Israk:26. And give to the kindred his due and to the Miskin (poor) and to the wayfarer. But spend not wastefully (your wealth) in the manner of a spendthrift . [Tafsir. At-Tabari, Vol. 10, Page

158 (Verse 9: 60)].

27. Verily, spendthrifts are brothers of the Shayatin (devils), and the Shaitan (Devil - Satan) is ever ungrateful to his Lord.

Bay’ al-Tawarruq

Buying a commodity on differed payment and selling it to a person other than the buyer for a lower price with immediate payment

Imam Ahmad ibn Hanbal – Prohibited (haram)

•Imam Muhammad bin Hasan Al-Shaybani (Hanafee) –Discourage (Makruh)

Imam ibn Taimiyyah – exceptional dealing (permitted only in the case of necessity ( Dharurat)

•Hanbali and many other scholars permitted Al-Tawarruq

ARGUMENTS ON PROHIBITED

DEFINITION

Bay’ al-Wadi’ah

The seller resells the goods at a discount from the original cost at which the goods were obtained (Below cost)

Examples :Commodity : crude palm oilCost price : RM 1000

Sale price : RM 900

Bay al-Tawliyah

The resale of goods at the stated original cost with no profit or loss to the seller

DEFINITION

Bay al- Istijrar

•an Arabic term that means “recurring sale” or “repeat sale” or “supply contract”.

•An agreement between the client and the supplier, whereby the supplier agrees to supply a particular product on an on- going  basis (weekly, monthly, etc), at an agreed price and method of payment

•An agreement where a buyer purchases a particular product from the seller or supplier from time to time

DEFINITION

Sale On OrderSale In The Way Of Ordering Which Means:

1. Price Is Paid In Advance But

2. The Assets Are Manufactured And Delivered At A Later Specified Time

Bay’ Istisna’

1. It Is Permissible (Halal) According To Majority

2. Islamic Fiqh Academy Resolved That:

Definition

Permissibility

FIRST• CONTRACT IS BINDING IF MEETS THE BASIC

REQUIREMENT AND CONDITIONS.

SECOND

• THE CONTRACT MUST STIPULATED THE REQUIREMENT SPECIFICATION OF THE PRODUCT TO BE MANUFACTURED.

• TIME LIMIT SHOULD BE SPECIFIED.

THIRD• PAYMENT MAY IN DIFFERED IN FULL BUT

ACCORDING TO PRE-DETERMINED INSTALLMENTS OR SPECIFIC DUE DATES.

FOURTH• THE CONTRACT MAY INCLUDE PENALTY.

• Agreed By The Two Contracting Parties.• Subject To The Case Of Force Majeure.

Bank Purchase For Rm 5m

Residential To Be Constructed

APPLICATION IN ISLAMIC FINANCE

DEFINITION OF HHIYAR

A Specific Type Of Right Of Either Or Both Parties To The Contract To Confirm Or Rescind The Contract

THERE ARE VARIOUS KINDS OF KHIYAR

According To HanafiScholars There Are 17Khiyar

According TO Shafie jurists There Are 16 Khiyar

KHIYAR (OPTION)

Khiyar Al-Majlis

(Session Option)

Khiyar Al-Syart(Condition Option)

Khiyar Al-Ayb’(Defect Option)

Khiyar Al-Ru’yah(Inspection Option)

THE 4 MOST PROMINENT KHIYAR ARE AS FOLLOW:

KHIYAR AL-MAJLIS (SESSION OPTION)

DEFINITION Means The Option Only Occur During The Session Which Both Parties Have The Right To Withdraw As Long As They Remain In The Same Majlis.

a) Only Applies For Exchange Of Commodities Or Their Benefits.

 b) Based On Imam Malik And Abu Hanifah, This Khiyar Is Invalid

 Sale Is Concluded Once Offer And Acceptance Have Been Uttered Even If Both Parties Still In The Meetings.

 c) Based On Shafie And Ibn Hanbal, This Khiyar Is Valid.

 The Parties Of Contract Have The Option To Rescind The Contract As Long As They Have Not Parted From The Session.

KHIYAR AL-SYART (CONDITION OPTION)

Both Or One Party Has The Choice Of Either Confirming Or Canceling The Contract During A Period Of Time

DEFINITION

The Seller, Or Buyer, Or Both, May Insert A Condition In The Contract Of Sale.Giving Them An Option, Within A Fixed Period, To Cancel Or Ratify The Sale.

THE OPTION OF CONDITION IS ALLOWED BY ALL SCHOLARS

BUT THEY DIFFER IN THE TIME ALLOWED 

I. Abu Hanifa, Zufar And Shafie : Maximum 3 Days.II. Abu Yusuf,Muhammad And Ahmad bin Hanbal : Can Exceed 3 Days. III. May Be Short Or Long Depends On The Buyer Or Seller Agreement.

a) FOR EXAMPLE:

OPTION CAN FALLS BY NECESSITY THROUGH 

I. Option Period ElapseII. The Death Of Option HolderIII. The Option Holder Is In The State Equivalent To

Death Like Insanity Or ComaIV. Object Sale Is Perishing

CANCELATION OR RATIFICATION OF THE CONTRACT MAY BE BY VERBAL(WORD)OR CONDUCT

I. Verbal: “I Ratify”II. Conduct: Modify The Object

KHIYAR AL-AYB’ (DEFECT OPTION)

Is An Option That Is Caused By The Defect In The Object Of Sale Itself

NECESSARY CONDITION 

I. The Defect Is In Existence Before The Receipt (Even If It Is After The Aqd)

II. The Buyer Is Unaware Of The Defect When He Receives The Commodity. If He Aware And Keeps Quite Then There Is No Khiyar. The Seller Does Ask For Consent.

III. The Defect Is Continuous Until Just Before Withdrawal.

DEFINITION

KHIYAR AL-RU’YAH(INSPECTION OPTION)

Is An Option That Is Caused When A Person Buy A Piece Property Without Seeing The Property.

I. Reason : A Buyer Want To Buy In Advance A Commodity He Has Not Seen Before Or During The Aqad

 a) The Inspection Option Is Established When The Buyer

Inspects (Sees) The Object Of Sale, And Not Before.

DEFINITION

KHIYARHak Pihak Berakad Sama Ada Ingin Meneruskan Akad Atau Membatalkannya Berdasarkan Sebab-Sebab Yang Diharuskan Oleh Syarak.

KHIYAR AL-MAJLISHak Pilihan Ketika Dalam Majlis, Hak Menentukan Pilihan Bagi Kedua Belah Pihak Untuk Melangsungkan Jual Beli Atau Membatalkannya Selama Mana Masih Dalam Majlis Tersebut. Sekiranya Berpisah Maka Hilanglah Hak Khiyar Majlis Itu.

KHIYAR AL-RU’YAHHak Bagi Pembeli Untuk Menyatakan Persetujuan Untuk Meneruskan Atau Membatalkan Jual Beli Terhadap Barang Dagangan Yang Belum Dilihatnya Semasa Kontrak.

KHIYAR AL-SYARTHak Memilih Yang Ditetapkan Oleh Salah Satu Pihak Yang Berakad Atau Keduanya Untuk Meneruskan Atau Membatalkan Jual Beli Dalam Jangka Masa Yang Ditetapkan.

KHIYAR AL-TA’YINHak Memilih Yang Diberikan Kepada Pembeli Dalam Menentukan Barang Yang Berbeza Kualiti Di Dalam Urusniaga.

KHIYAR AL-‘AYBHak Untuk Membatalkan Atau Melangsungkan Jual Beli Bagi Kedua Belah Pihak Yang Berakad Apabila Terdapat Suatu Kecacatan Pada Barang Dagangan. Sedangkan Kecacatan Itu Tidak Diketahui Oleh Pemiliknya Ketika Akad.

FIRST• CONTRACT IS BINDING IF MEETS THE BASIC

REQUIREMENT AND CONDITIONS.

SECOND

• THE CONTRACT MUST STIPULATED THE REQUIREMENT SPECIFICATION OF THE PRODUCT TO BE MANUFACTURED.

• TIME LIMIT SHOULD BE SPECIFIED.

THIRD• PAYMENT MAY IN DIFFERED IN FULL BUT

ACCORDING TO PRE-DETERMINED INSTALLMENTS OR SPECIFIC DUE DATES.

FOURTH• THE CONTRACT MAY INCLUDE PENALTY.

• Agreed By The Two Contracting Parties.• Subject To The Case Of Force Majeure.

PERMISSIBILITY1. It Is Permissible (Halal) According To Majority

2. Islamic Fiqh Academy Resolved That:

Bank Purchase For Rm 5m

Residential To Be Constructed

APPLICATION IN ISLAMIC FINANCE

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