- bai al-inah
A sale and buy-back transaction, where a customer sells an asset to a financial institution and then buys it back at a higher price. The transaction is designed to provide the customer with a cash sum.International, USAAn Islamic finance technique used to provide financing to borrowers on terms compliant with Sharia. In a bai al inah transaction, a lender sells an asset to a buyer (the borrower) on credit for a fixed price (the loan amount) plus a profit element (analogous to the interest amount in a conventional finance transaction). The lender immediately repurchases the asset from the borrower in cash for the fixed price. Following the sale and buy-back the:• Lender owns the asset.• Borrower gets the cash it needs.• Borrower has an obligation to pay the asset's original purchase price (plus the profit element) in installments.This technique has been questioned by some Islamic scholars as a legal contrivance intended to overcome the Islamic prohibition against riba and therefore violates Sharia principles. However, others have argued that the intention of the parties is immaterial and does not invalidate a technique that is otherwise compliant with Sharia.Bai al inah is an example of the philosophical differences between the two centers of Islamic finance: the Middle East and North Africa (MENA) and Malaysia and Indonesia. While not accepted in the MENA, bai al inah was upheld as a valid technique in a 2009 opinion by the Malaysian Court of Appeals.
Practical Law Dictionary. Glossary of UK, US and international legal terms. www.practicallaw.com. 2010.