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Sunday, 15 March 2009

Resolution: Bai' Wafa'


At its eleventh meeting on 26 November 1997, the SAC passed a resolution that bai' wafa' is permissible under Islamic jurisprudence and can be developed as a principle to develop products in an Islamic capital market.


Bai' wafa' is also known in other terms, such as bai' thanaya (Malik, mazhab), bai' 'uhdah (Shafi'e mazhab), bai' amanah (Hanbali mazhab; or bai' to'ah or bai' jaiz. The Hanafi book named it bai' mu'amalah.

Section 118 of Majallah al-Ahkam al-'Adliyyah defined it as a sale with a condition that when the seller pays back the price of the goods sold, the buyer returns the goods to the seller.

According to al-Zarqa', it is 'aqd tauthiqiy (security contract) if) the form of a sale based on the fact that both parties to the contract have the right to claim the exchanged goods. This means that when there is a wafa' sale, the seller has the right to claim the goods he has sold by paying the buyer the full price of the goods sold. It is called wafa' because of the obligation to fulfill the condition in the contract i.e. returning the goods sold when the seller claims It by paying back the amount.

The main features of bai' wafa' are:

i. The seller and buyer can terminate the contract at any time.

ii. The asset traded according to wafa' is not an asset obtained through musya'.

iii. The buyer can utilise and benefit from the property bought through wafa'.

iv. The buyer will be responsible for the property and for any damage caused by his carelessness or negligence.

v. The buyer cannot transfer the right of ownership to another person via a sale. However, there are some Hanafi mazhab scholars who consider the transfer of ownership to a third party permissible on condition that the asset can be claimed.

Based on the above explanation, it can be concluded that the financier acts as the buyer of the asset from the individual needing capital. These features also show the presence of rahn (pledge) feature in bai' wafa' despite it being in the form of a sale. For that reason, AI-Zarqa' in an analysis of the features of bai' wafa' stated that it is a combination of rahn and bai' (sale). Thus, it is considered a contract in itself and not fully bound by bai' or rahn.

To illustrate bai' wafa': A sells a property to B on condition that if A pays back the cost of the asset, B will return the asset to A. The price is fixed by both parties, and the buyer can use the asset and enjoy its benefits as long as he does not transfer the ownership right to a third party.

To illustrate the application of bai' wafa' in a capital market - ABC Company gets a ship building contract and the order is estimated to be ready in two years. The company can issue sukuk using the bai' wafa' principle by securitising the two - year dayn (debt). By issuing the sukuk, the company can obtain liquidity to run other projects using the existing capital. The sukuk issued is a joint funding by investors of the ship building project. When the project is completed, ABC will buy back the sukuk from the investors plus the profits, as agreed. For this type of sukuk, the profits are known by the investors because the capital and costs have been determined.


Opinions of Past Islamic Jurists

Past Islamic jurists were divided on determining the ruling on bai' wafa'.

The Maliki, Hanbali mazhab and mutaqaddimun (the earlier generation) of the Hanafi and Shafi'e mazhab considered bai' wafa' as not permissible because trading is not the main purpose of the bai' wafa' contract. Instead, its main purpose is to make permissible riba which is forbidden.

The mutaakhhirun (the later generation) of the Hanafi and Shafi'e mazhab permitted bai' wafa' on the grounds that it is an effort to prevent oneself from committing riba. They permitted it due to society's demand and because it had become the social 'urf in many places.

Some of the Islamic jurists of Hanafi mazhab were of the opinion that both seller and buyer can sell the wafa' goods to a third party on condition that both parties had agreed to the acts of the other party. In fact, some Islamic jurists such as AI-Ba'lawi from the Shafi'e mazhab and AI-Sadr al-Shahid Omar Adul Aziz and AI-Marghiani from the Hanafi mazhab even permitted the buyer to sell the wafa' goods to a third party without referring to the wafa' seller.

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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