Bay Inah

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One party sells the other a good with deferred payment, which is immediately resold spot. Hence the first party has to pay an amount in future but receives cash today, which is lower. This type of transaction is allowed in Malaysia under the Shafii school, but rejected in the Gulf countries as impermissible.

Bay Inah is seen by the Maliki and Hanbali school according to Zuhayli as invalid, and for the Hanafi as defective. Only the Shafi school accepts it as it does not look at the intentions, which are left to judge by Allah, rather they look at the language of the two valid sales contracts.

In any case to market cash procurements like Bay Inah or Tawarruq on the retail side is ambitious, because it is very difficult to convince pious Muslims about the real difference behind it, which is solely of legal nature. Because of that, financial institutions will face a substantial long term reputational risk among their clients if they are offering products based on cash procurement with returns and endangering the entire sector’s credibility.