UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Different Types of Sale in Islamic Finance

Bai’ al ‘inah (sale and buy-back agreement)

‘Bai’ al inah is a financing facility with the underlying buy and sell transactions between the financier and the customer. The financier buys an asset from the customer on spot basis. The price paid by the financier constitutes the disbursement under the facility. Subsequently, the asset is sold to the customer on a deferred-payment basis and the price is payable in installments. The second sale serves to create the obligation on the part of the customer under the facility.

Bai’ bithaman ajil (deferred payment sale)

This concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties. Like Bai’ al ‘inah, this concept is also used under an Islamic financing facility. Interest payment can be avoided as the customer is paying the sale price, which is not the same as interest charged on a loan.

Bai’ muajjal (credit sale)

Literally, bai’ muajjal means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of murabahah muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price. Bai’ muajjal is also called a deferred-payment sale. (Wikipedia)

UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

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