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Sunday, 15 March 2009

Fatawa: Bai' Dayn


At its second meeting on 21 August 1996, the Syariah Advisory Council (SAC) unanimously agreed to accept the principle of bai' dayn i.e. debt trading as one of the concepts for developing Islamic capital market instruments. This was based on the views of some of the Islamic jurists who allowed this concept subject to certain conditions. In the context of the capital market, these conditions can be met when there is a transparent regulatory system which can safeguard the maslahah (public interest) of the market participants.


From the Islamic jurisprudence point of view, dayn encompasses a wide scope, i.e. payment for product, qardh (loan) payment, mahr (dowry) payment before or after cohabitation, that is mahr which has not been given after the marriage 'aqd (contract), rental, compensation for crime committed (arsh), compensation for damages, money to be paid for divorce (khulu') and for orders which have not arrived (muslam fih).

In the context of the Islamic capital market, bai' dayn is the principle of selling the dayn which results from the mu'awadat maliyyah contract (exchange contract) such as murabahah, bai' bi thaman ajil (BBA), ijarah, ijarah muntahiyah bi tamlik, istisna' and others.


The bai' dayn principle is an issue that has always been an argument among past and present Islamic jurists. However, there is no general nas or consensus (ijma') among those who forbid it.

In general, the majority of Islamic jurists are unanimous in allowing the activity of selling debts to the debtor. They only differ in opinion about selling the debt to a third party for the reason that the seller will not be able to deliver the sold item to the buyer.

At its eighth meeting on 25 January 1996, the IISG identified the illah for why some Islamic jurists do not allow bai' dayn. The illah generally touches on the risks to the buyer, gharar, absence of qabadh and riba.

Opinions of Past Islamic Jurists

The Hanafi mazhab looked at bai' dayn from the aspects of potential risks to the buyer, debtor and the nature of the debt itself. They were unanimous in not permitting this instrument because the risks cannot be overcome in the context of debt selling. The debt is in the form of mal hukmi (intangible property) and the debt buyer takes on a great risk because he cannot own the item bought and the seller cannot deliver the item sold.

The Maliki mazhab had allowed debt selling to a third party subject to certain conditions to facilitate the use of this principle in the market. The conditions were as follows:

i. Expediting the payment of the purchase.

ii. The debtor is present at the place of sale.

iii. The debtor confirms the debt.

iv. The debtor belongs to the group that is bound by law so that he is able to redeem his debt.

v. Payment is not of the same type as dayn, and if it is so, the rate should be the same to avoid riba.

vi. The debt cannot be created from the sale of currency (gold and silver) to be delivered in the future.

vii. The dayn should be goods that are saleable, even before they are received. This is to ensure that the dayn is not of the food type which cannot be traded before qabadh occur.

viii. There should be no enmity between buyer and seller, which can create difficulties to the madin (debtor).

The conditions set by the Maliki mazhab were divided into three categories:

i. To protect the rights of the debt buyer.

ii. To avoid debt selling before qabadh.

iii. To avoid riba.

The Shafi'e mazhab was of the opinion that selling the debt to a third party was allowed if the dayn was mustaqir (guaranteed) and was sold in exchange for 'ayn (goods) that must be delivered immediately. When the debt was sold it should be paid in cash or tangible assets as agreed.

Ibnu al-Qayyim was of the opinion that bai' dayn was permissible because there was no general nas or ijma' that disallowed it. What was stated was the prohibition of bai' kali' bi kali'.

Results of the study showed that the main reason for the clash of opinions on bai' dayn among the past Islamic jurists centre on the ability of the seller to deliver the items sold. This was stated by Ibnu Taimiyyah himself and was also based on statements made in the great books of the four mazhab.

The argument of the Islamic jurists that prohibited bai' dayn to a third party for fear that the buyer would have to bear great risks (Hanafi mazhab) has some truth in it. This is especially true if there is absence of supervision and control. In this context, the buyer's maslahah should be safeguarded because he is the party that has to bear the risks of delivering the debt sale while making the sale contract. In the Malaysian context, the debt securities instruments developed according to the principle of bai'dayn are regulated by Bank Negara Malaysia and the Commission to safeguard the rights of the parties involved in the contract. Therefore, the conditions set by the Maliki mazhab and the fears of risks by the Hanafi mazhab can be overcome by regulation and surveillance.

It can thus be concluded that although there are differences in opinions on bai' dayn among the Hanafi and Maliki mazhab, there is a meeting point allowing the principle which states that bai' dayn can be used if there is a regulatory system that protects the buyer's maslahah in an economic system.

The fifth condition set by Maliki mazhab relates to the exchange of ribawi goods (see page 76). In the context of the sale of securitized debt, the characteristics of securities differentiates it from currency, and hence, it is not bound by the conditions for exchanging of goods.

Country Of Origin : Malaysia
State : Kuala Lumpur
Fatawa Issuing Body : Securities Commission
Author/Scholar : Syariah Advisory Council
Date Of Issue : October 2003
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