UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Bai Muajjal

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. However, one of the essential descriptions of riba is an unjustified delay in payment or either increasing or decreasing the price if the payment is immediate or delayed. (Wikipedia)

Bai Muajjal (Maulana Taqi Usmani) – Sale on Deferred Payment Basis:

1. A sale in which the parties agree that the payment of price shall be deferred is called a Bai Muajjal.

2. Bai Muajjal is valid if the due date of payment is fixed in an unambiguous manner.

3. The due time of payment can be fixed either with reference to a particular date, or by specifying a period, like three months, but it cannot be fixed with reference to a future event the exact date of which is unknown or is uncertain.  If the time of payment is unknown or uncertain, the sale is void.

4. If a particular period is fixed for payment, like one month, it will be deemed to commence from the time of delivery, unless the parties have agreed otherwise.

5. The deferred price may be more than the cash price, but it must be fixed at the time of sale.

6. Once the price is fixed, it cannot be decreased in case of earlier payment, nor can it be increased in case of default.

7. In order to pressurize the buyer to pay the installments promptly, the buyer may be asked to promise that in case of default, he will donate some specified amount for a charitable purpose.  In this case, the seller may receive such amount from the buyer, not to make it part of his income, but to use it for a charitable purpose on behalf of the buyer.

8. If the commodity is sold on installments, the seller may put a condition on the buyer that if he fails to pay any installment on its due date, the remaining installments will become due immediately.

9. In order to secure the payment of price, the seller may ask the buyer to furnish a security whether in the form of a mortgage or in the form of lien or a charge on any of his existing assets.

10. The buyer can be asked to sign a promissory note or a bill of exchange, but the note or the bill cannot be sold to a third party at a price different from its face value. 


Bai Muajjal

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Misconception Around Bai Muajjal

Bai Muajjal

UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

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