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Operational issues of BBA, and why it’s not permissible in Middle Eastern countries October 18, 2009

Posted by informationmedia in Economics, finance.
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Operational issues of BBA, and why it’s not permissible in Middle Eastern countries

by: Rhesa Yogaswara, S.Si


Before we discussed Bai-bithaman ajil, we need to know the concept of the aqad of the transaction. First, we will discuss the murabahah. In principle, murabahah means mark up sale. It is a sale contract in which the object of sale is sold at a price equivalent to the cost price and profit margin.[1]

There are two types of murabahah. There are cash murabahab and credit murabahah. Cash murabahah is a sale contract where the seller sells a commodity with a price equal to the cost price and a profit margin. The purchase is settled in cash.

The next type is credit murabahah. It is a credit sale with purchases settled by installment payments. The price is equal to cash murabahah prices but a premium is added over the profit margin to reflect time value of money. A long-term credit murabahah is known as al-bai-bithaman-ajil (BBA).

In practical, the operational of BBA sale consists of three contracts. First, bank buys property from customer. It is called Property Purchase Agreement (PPA). The next contract is Property Sale Agreement (PSA). It means that bank sells property to customer at BBA price. The last contract is deeds of assignment/charge. It is the process, which bank holds property as collateral.[2]

Charged on every BBA sale arises from cost of deposit, overhead, profit margin, and consequence of waiting for payment. But any increase, according to the majority of Jurists in the Shafi’I, Hanbali, Hanafi, and Maliki Schools must contain ‘iwad.. Sholar in middle east argue that the BBA transactions are in fact interest-based loans and a form of hila (trickery). Therefore, BBA transaction is not valid in their countries.

In Malaysia, profit earned from BBA is considered halal since it is based on a sale and purchase contract, rather than a loan. One unique feature of the BBA facility is the selling price itself, which is fixed throughout the duration of the tenure. Any change in price will make the contract null and void. The bank must make sure tht the selling price remains unchanged until the contract expires.

My opinion, the aqad of Al-Bai-Bithaman-Ajil is allowed if each single thing in the process is correct consistently, which when the bank buy the property first and then bank sell the property to the customer. It means that the ownership should be move the the bank first and then move to the customer. From profit taking side, it is halal since the profit is taking from sale, which is not from loan.

However, I believe that the movement of ownership from bank to customer after all deferred payment done is weird and feel not fair for customer. In practical, I think for long-term home financing, we need to use another aqad that more fair.

[1] Rosly, Saiful Azhar. 2005. Critical Issues on Islamic Banking and Financial Market. Dinamas. Kuala Lumpur. Al-Bai-bithaman Ajil Financing, pg 87

[2] Ibid. pg 91



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