Sharia-Compliant Islamic Finance Credit Sales
Bai’ muajjal – Islamic finance credit sale
Bai’ muajjal is a type of Islamic finance credit sale that is compliant with the shariah. Bai’ muajjal literally means credit sale. In a Bai’ muajjal the financial institution will earn a profit margin on the price of a purchased asset or assets and will let the buyer pay off the price and they can do so all at once or in installments. Both parties in this Islamic finance transaction must agree upon the cost of the asset, as well as the profit margin.
Bai’ muajjal is also referred to as a deferred payment sale, but one of the main descriptions of riba is a delay in payment that is not justified or the increase or decrease in the price if the payment is right away or is delayed. Riba, in terms of shariah terminology, shows an excess of payment without prudent consideration.
Bai’ muajjal is an Islamic finance activity and there are many Islamic financial institutions that will have this kind of credit sale for those that follow the Muslim faith. Under shariah law, there cannot be any fixed or floated payments accepted of interest, as well as other fees, for monetary loans such as for a Muslim mortgage. Transactions in Islamic finance are not new, but more Islamic banks in the 20th century were established in order to apply principals to individual or commercial institutions that are in the Muslim community and to follow shariah law.
The Bai’ muajjal is a system of investment that is a credit sale where a financial institution, which deals with Islamic finance, will but the goods according a parties choice for onward sales. In this type of credit sale the stop delivery will be ensured. The sale price payment is deferred for a fixed period of time. The financial institution that deals with the Bai’ muajjal will transfer the ownership of the asset to the party before the sale price receipt. This is a way to follow shariah law properly. Also, the financial institution will take on the risks of the asset or assets after the purchase of them until the time when they are delivered to the individual or company.
The deferred price in the Bai’ muajjal can be set at an amount that is more than the spot price and there are not any restrictions put on this action. This is the case as long as the price is set when the purchase takes place. Once the price has been set by the terms of the contract is cannot change. Understanding Islamic finance transactions is important in properly following shariah law.