Bai Bithaman Ajil

Bai Bithaman Ajil is a “deferred payment sale”, which works like a murabahah contract, but with payment generally made on a deferred basis. In some countries Bai Bithaman Ajil is also known as Bay’ al Muajjal (e.g. Pakistan) or Bay’ Muazzal (Bangladesh).

Although the Bai Bithaman Ajil contract goes by many names, in practice it works similarly to a sales contract, with deferred payment and pre-agreed payment dates. The sale price quoted for the asset in the contract is inclusive of the profit. The typical assets for such contracts are the land, building, machinery and equipment [1].

Bai Bithaman Ajil is one of the most popular Islamic financing techniques used in Malaysia and it can be considered as a substitute of the finance lease. It is used by customers to purchase assets of substantial value in installments, from which they can generate future cash flows. In this agreement, the customer gets the asset and is required to make payments as per the agreed tenure in installments. The customer purchasing the asset is required to pay the profit to the financial institution that arranges the assets.

Scholars have noted that excessive ambiguity (gharar) must be avoided in formulating the contract. Hence, an asset having physical existence and identified by the customer, the risks of gharar are minimized. However, if the sale or purchase agreement is for the house which is to be constructed it may raise concerns over the legality of Bai Bithaman Ajil as the outcome of such an agreement will be uncertain [2].

The concept of Bai Bithaman Ajil has been implemented in almost all financial institutions of Malaysia since 1983 [3].

Related Verse from the Qur’an

“Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: “Trade is like usury,” but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire. They will abide therein (forever).” (Al Quran, Al Baqrah, 2:275)

References

[1] MIFD (n.d.) Bai’ Bithaman Ajil. MIFD, [ONLINE], Available at: http://www.midf.com.my/our-product-a-services/development-finance-division/667

[2] Razali, S. (2008)  The Principles of Gharar in Bai Bithaman Ajil Contract. Proceedings of The MFA Conferece.

[3] Abdul Razak, Dzuljastri, Mustafa Omar Mohamed, and Fauziah Md Taib. "Consumers’ acceptance on Islamic home financing: empirical evidence on bai bithaman ajil (BBA) in Malaysia." (2008): 1-22.