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Layout
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Product Description
Product: Bank Rakyat Personal Financing-I ASLAH (BRPF )
Based on Bay-al-Inah contract
Most Successful in the Malaysian market
Bank earned a name for itself in the market as ‘House of Inah’ due to it’s successful record (off the record)
Used mainly for facilities upto RM 200,000 with a 20 year repayment period
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Product Description
PERSONAL FINANCING-I ASLAH
Our personal financing facility can assist individuals in meeting financial obligations e.g. down payments for a car, houses, home renovations and others.
Concept
Bay-al-Inah
Eligibility
Malaysian citizens between the ages of 18 and 55 years (58 years old government employees only)
Government employees with a minimum income of RM700.00
Private sector employees with an income of RM3000.00
Employees in service for not less than 3 years
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Product Description
Financing of up to RM200,000.00* or monthly deductions not exceeding 60% of gross monthly income
Repayment Period
Maximum of 20 years
Repayment Method
'Biro PerkhidmatanAngkasa (BPA)'
Employee Salary Deduction
Savings Account Deduction
Special Features
Low monthly installment
Fast Approval
No guarantor and collateral*
Profit rate as low as 3.25%
*Terms and conditions apply
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Product Description
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Product Description
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Contract Analysis - AQAD
Literally: Aqad means “to join” and “to tie”. Thus, the term has an underlying idea of joining the intentions and declarations of two parties.
Terminologically: Aqad in the general sense applies to every act undertaken by an individual with firm determination. Aqad in the specific sense is defined as “a combination of an offer and acceptance which gives rise to certain legal consequences”.
Mejella: Defined Aqad as “the obligation and engagement of two contracting parties with reference to a particular matter”.
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Contract Analysis - AQAD
Buyer and seller: Both parties must have complete capacity, which means that they have reason (Aql) and discretion (Rushd).
Price: The price must be set on the spot and must be known to the buyer.
Subject matter: The subject matter should be lawful and owned by the seller, it should be deliverable, and should be precisely determined at the time of contract.
Offer and acceptance: The form of the contract must comprise an offer from one party and an acceptance from the other.
Moreover, is necessary that the acceptance must conform to the offer in all its details.
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Bay-al-Inah- Classical Transaction
B
(1)
A sells asset to B on credit basis
B sells asset to A on cash basis
(2)
A
Figure – 1: Structure of Classical Transaction
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Bay-al-Inah – Shariah view
“Refers to a sale of an asset, which is later repurchased at a different price, whereby the deferred price is higher than the cash price”.
Al-Zaila’i: “It is a deferred sale of an asset with a subsequent repurchase of the same asset at a lower cash price.”
Al-Kharshi
“It is paying less for more”.
Al-Shafi’i
It is a credit purchase of an asset which is later sold to the original owner or a third party, at a spot price higher or lower than the first contract, provided that the second sale is not connected to the first sale”.
IbnQudamah: “It is a sale of an asset with a deferred price, and buys back the same asset at a lower price”.
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Bay-al-Inah – Shariah view
Scholars are divided into two groups regarding the permissibility of Bay-al-Inah.
Those who consider it impermissible: The first group of scholars who reject Bay-al-Inah and consider it a forbidden transactionare the Hanfies, Malikis, Hanblis, and some
Shafies.
Those who consider it permissible: The second group of scholars who accept Bay-al-Inah and consider it a legal and permissible transaction are Imam Shafi’e and some Shafies.
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Bay-al-Inah – Shariah view
Hadith #1: “If you sell and purchase based on inah, and you cultivate, and you are satisfied with the cultivation, and you ignore the duty to do jihad, Allah SWT will curse you and He will not remove the spell until you return to your religion”.
Hadith #2: “If the people count every single dinar and dirham, and sell and purchase based on inah, and cultivate the land, and abandon the duty of jihad for the sake of Allah SWT, Allah SWT will befall misfortune on them, and will not remove it from them until they return to their religion.”
Reason: Inah is prohibited because it is a device that aims to circumvent the prohibition of Riba.
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Bay-al-Inah – Shariah view
Hadith #1: Al-Hafiz Al-Mundhri stated that some narrators of the Hadith are not up to the required standard. However, Ibn
Al-Qayim said otherwise.
Hadith #2: IbnHajr considered this Hadith as weak, because of some issues in the Sanad of the Hadith. While Ibn Al-
Qattan considered it as authentic Hadith.
Reason: Inah is permissible and is in line with Shari’ah principles, if we look at the externalities of the contract.
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Contract Analysis – AQAD
Bank Rakyat Personal Financing-I ASLAH (BRPF)
Figure – 2 : Structure of Bank Rakyat Personal Financing Transaction
Activity 1: Customer approaches Bank with ‘Facility’ request
2: Bank gives offer letter to be filled up by the customer
3.Once filled, the bank offers to sell its shares to the customer at
C+I on deferred payment basis
4. Customer is made to ‘touch’ the Certificate of shares as part of
Aqad procedure
5. Customer sells back the shares to the Bank at C price on cash basis
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Contract Analysis – AQAD
Bank Rakyat Personal Financing-I ASLAH (BRPF)
Figure – 3: Structure of Interest-Based Loan
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Contract Analysis – AQAD
Bank Rakyat Personal Financing-I ASLAH (BRPF)
The amount ‘I’ constitutes Riba under both structures.
Activity 3 in Figure - 2 involves a mere debt creation exercise.
There is no sale in the real sense, as the commodity does not move from the bank to the client.
The net result of the above two activities are similar to the conventional loan transaction.
Under bay-al-Inah, the market price of the commodity need not bear any relationship with the amount effectively borrowed .
There is no genuine trade and exchange in bay-al-Inah.
The values C or C+I need bear no relationship with the market price - cash or deferred price of commodity X.
The repurchase in bay-al-Inah is for the amount that the client needs to borrow. The deferred sale is for the loan amount plus profit/interest .
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Contract Analysis –
Legal Documentation
The customer is applying for a financing facility to be used for a specific purpose, mentioned in the “asset purchase agreement” Preamble B, clause 10 (ASA).
In preamble B of the asset purchase agreement, the bank states that this transaction is a financing facility .
Clause 2 (a) states that the purchase price is the total amount of the financing facility granted by the bank to the customer
Purpose behind the transaction is not a normal sale and purchase, but a means to receive a loan (Lending and
Borrowing).
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Contract Analysis -
Legal Documentation
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The content of preamble (C), clause 1, clause 29 (b), clause 7 (b),
clause 32, second schedule section 1 of the (ASA), and the content of
preamble (C) of the (APA), show that both the (ASA) and the (APA) are linked and dependent upon each other.
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In preamble (C) of the (ASA) and (APA), the sale and purchase mechanism is mentioned in one sentence.
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Clause 1 and clause 29 (b) of the (ASA), show that the selling price is determined by the purchase price.
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Clause 32 of the (ASA) states that the sale and purchase agreements are instruments employed in one transaction.
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Section 1 of the second schedule shows that the customer will start paying the installments only after receiving the purchase price.
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Contract Analysis -
Legal Documentation
The ban on combining two sales in one sale is reported in a number of Hadiths.
Abu Hurairah peace be upon him said: “Prophet
Muhammad peace be upon him prohibited two sales in one”.
IbnMasud peace be upon him said: “Prophet
Muhammad peace be upon him prohibited two deals in one”.
The above mentioned clauses show that the fulfillment of the first sale (ASA) is conditional upon the fulfillment of the second sale (APA).
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Contract Analysis -
Legal Documentation
Clause 4 of (ASA), and the content of preamble (A) and
clause 5 of (APA), - bank has legal ownership of the asset.
Clause 4 of (ASA), and clause 5 of (APA), - beneficial ownership of the assets shall pass to the customer, upon execution of the agreement.
Preamble (A) of (APA) - bank is the legal owner of the asset.
Clause 7 of (APA) – Bank to be indemnified by customer for damages arising from assets.
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Contract Analysis -
Legal Documentation
Sale transaction must result in the transfer of title to buyer .
Passing of beneficial ownership alone, without the legal ownership does not constitute full transfer of ownership.
When the customer sells back the asset to the bank he is selling something that he does not own.
The Holy Prophet (PBUH) said “do not sell what you don’t own”.
Ownership risk to reside with owner.
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Contract Analysis -
Legal Documentation - Miscellaneous
No Collateral. Unsecured loans.
No security deposit except for two months of advance payments. This payment is deducted from ‘Facility’ amount before disbursement
If guarantor is required, guarantor signs a Letter of Guarantee and
BPA authorization
Stamp duties are applied only on Sale agreement (when Bank sells to the customer) and not when the Bank purchases from customer
It is one sided contract as all the Stamp duties, taxes or any legal costs are borne by the customer
Defaults handled by the centralized recovery units
Late payment charges – paid at predefined rate and credit to Bank’s profit account – clause 8 (ASA)
Restricted use of Purchase price (Loan amount) – clause 6 (APA)
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Contract Analysis -
Financial Statement
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Contract Analysis -
Financial Statement
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Contract Analysis -
Financial Statement
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Contract Analysis -
Financial Statement
74% of the revenues are derived from Financing and advances
Bank made highest profits (~70%) from Personal Financing from among the Financing products
This product is based on Bay-al-Inah contract
72% of the profits from the Islamic contracts is earned from
Bay-al-Inah contract
Low rate of default – less than 3.01 % of NPL
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Contract Analysis -
Financial Statement
Industry leader in Personal Finance
Main reason for higher profits rate from this instrument can be attributed to:
Secure recovery.
Repayment deduction from the source – Employers
Majority customers – Government employees
Tie-ups with organizations like BPA for loan recovery
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Advantages and Disadvantages of
Bay-al-Inah
Advantages
Provides an opportunity to fulfill basic necessities.
Provide equitable distribution of wealth.
Enables the shareholders/depositors to profit.
Disadvantages
Enrich the shareholders/depositors at the expense of the customers.
Increase the amount of dept in the society.
Perform Hilah to circumvent the prohibition of Riba
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Conclusion
Intent of transaction is to provide loan
Two sales in one sale transaction
There is no actual transfer of assets from Bank to customer and vice versa.
The customer legally does not own the assets.
Bank used to own and show computers as underlying asset of the Aqad at least. No more required to do so.
In some cases there need not be any certificate at all.
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