TOPIC 5:THE USE OF BAY AL-DAYN CONTRACT IN THE MALAYSIAN

ISLAMIC BANKING SYSTEM

1.AINA ATHAHIRAH JUHARI 225309

2.ILY AQILA BT TUGI 225480

INTRODUCTION•Bay al-Dayn means sale of debt• It is controversial sale contract in many of its application for

economic activities because it have element of riba’ al buyu• The rules of riba’ al buyu need some denominatios should

be sold only on the spot.•According to Fatwa ,al dayn is allowed in Malaysia.

DEFINITION• Al-Dayn means debt and Al Bay means sales.• Dayn can be in the form of price, loan and rent.• There are two type of debt :-

1)Confirmed Debt (Dayn Mustaqir)2)Unconfirmed Debt (Dayn Ghayr Mustaqir)

• Debt are traded in debt or bond market. • Therefore, bay al dayn or debt trading is define as the sale of payable rights

either to be debtor himself, or to any third party.• In addition, Bay al-dayn is a sale contract similar to other contract but differs in

its application and process.

NATURE OF BAY AL DAYN

• The debt trading is to avoid the occurrence of riba between two debts and also to avoid any kinds of gharar which may make the buyer cannot pay the debt from what he has bought as it is not permitted that the buyer sold before actual receipt of the purchased item.

RULE ON DEBT TRADING IN SHARIAH• The Shariah allows the selling of debt by its equivalent in quantity and time of maturity by

way of hawalah• According to most Hanafis, Hanbalis and Shafie jurists, it is not allowed to sell Al-Dayn to

non-debtor or a third party at all. However Malikis, and some Hanafis and Shafie jurist allowed selling of debt to third party with some conditions which are :-

a-The seller can deliver the debts;b-The debt must be confirmed and the contract must be

performed on the spot;c-The debt cannot be created from the sale of currency (gold and silver) to be

delivered in the future and the payment is not of the same type as debt, and if it is so, the rate should be the same to avoid Riba.

d-The debt should be goods that are saleable, even before they are received. This is to ensure that the debt is not of the food type which cannot

be traded to the debtor.

• Any sale of debt (Bay’-al-dayn) must be at face value. • The debt is created by the sale of goods and services through the sale-based

modes of Islamic Finance, particularly Murabahah.• Issue on gharar (uncertainty) in this kind of sale is not a serious• The Islamic Fiqh Academy of Jeddah which is the largest representative body of

the Shariah scholars and is represented by all the Muslim countries, in its 16th convention at Mekka on 5-10th January 2002 has re-discussed the issue and stated that sale of debt is prohibited including the following:-

a) Sale of debts to debtors with a deferred payment plan exceeding debt amount as this can be considered as Riba al-Fadl and Riba an-Nasiah. (Jadwalah ad-Dayn)b) Sale of debts to a third party with a deferred payment plan whether the debt is paid with the same type of kind or not; as this can be considered as sale of debt with debt

ISLAMIC VS CONVENTIONAL COUNTERPART

ELEMENT ISLAMIC COUNTERPART CONVENTIONAL COUNTERPART

Riba’ No element of Riba’ because the bank need to reddem the debt based on face value.

Have element of Riba since the aim is to gain the profit.

Gharar Eliminate the element of Riba because They are not talking off a debt by an unknown (majhul) person with an unknown credit standing.

Same with Islamic Counterpart

APPLICATION OF BAY AL DAYN• Bay al dayn as money market instrument

- Use of the bay al-dayn is related to trading instruments, which have contributed to the development of many securitized products and bonds traded

-Money market instruments based on Islamic principles have emerged in competing or complementary to conventional ones.

• Islamic Treasury bill

- Bank Negara Malaysia on behalf of the Government to issue treasury bills to raise short-term funds for financing based on Islamic principles acceptable to Shariah requirements

- MITB is usually released between 21days to original maturities of 1 year

- Whether conventional or Islamic institutions can buy and sell treasury bills Islam

•Export Credit Refinancing

- Export credit refinancing scheme or ECR is a short-term financing facility to promote exports of

manufactured goods and agriculture viable and have a good added value

- Export credit refinancing (ECR-i) is divided into two parts, ECR-i pre-shipment and ECR-i post

shipment

-By export credit refinancing operations (ECR-i) pre-shipment was found that the two contracts

were used in the murabahah transaction in the first phase and the next bay al-dayn in the second phase.

- The post-shipment ECR-i is a financing facility under contract bay al-dayn provided directly to

exporters who export products eligible under the terms of the visual input.

•Islamic accepted bill

- Provided by the Bank and accepted by the purchaser or buyer

- Bank can sell the IAB in the secondary market at a discount under the bay al dayn.

•Islamic bonds

- Malaysian Islamic Economic Development has positively contributed to the use of bay al-dayn.

- Malaysia has been advocating the application of Islamic securities based on the concept of al-dayn bay.

• SBPU (Surat berharga pasar wang)

-uses the concept of al-dayn bay with its application

-these types of applications have introduced a reserve fund or a cushion that can be used in any situation that makes it work

ISSUES OF BAY AL DAYN• Bay al dayn is more usual than qard (loan) whereby, in qard contract, creditor will

lends money or item to the debtor on a condition where the debtor will get return the value of the money to the lender at a precise time.

• In Islamic commercial law, dayn can be traded only at par under the purview of hiwalah (transfer of debt). There is no space to get profit from a debt trading.

• According to Mazhab Hanafi, bai’ al-dayn is the aspects of potential risks to the buyer, debtor and the nature of the debt itself. Therefore, Hanafis also not allowed bay’ al-dayn to the third party despite of the types of debts because the risks cannot be overcome in the context of debt selling.

• Contrary to that, Shafi’is maintain that the sale of a debt is allowed if it is confirmed debt and was sold in exchange for goods that must be delivered immediately.

• Bond or dayn in this case is not a commodity or property, but only the rights of the loan (ie the right to future cash flows caused by the repayment of loans) represented by a piece of paper documents or certificates.

• When bonds are sold at a discount or premium, sales dayn is similar to the unequal exchange of money for money; it involves riba al-fadl. Therefore, any profits made from the sale of dayn are illegal.

CONCLUSIONS• Bay al-dayn should be given due credit to contribute

for the Islamic economic particularly in the Islamic banking and finance.

• To ensure that Bay al-dayn be practiced widely, there are certain conditions should take place:– should or at least attempt to allow Bay al-dayn to be

undertaken where necessary in transacting economic activities

– should seriously considered purpose (maqasid) approach to accept the importance of Bay al-dayn

– the transaction rose by Bay al-dayn must bound by Shariah– the creditor sells his asset either to the debtor or to a third

THANK YOU