Bay Al-Mudaf - ijaraCDC

Bay Al-Mudaf

Islam is a monotheistic religion founded in 610 by the prophet Muhammad. Its followers are called Muslims, who comprise about 23 percent of the population. The greatest concentrations of Muslims are in the Middle East, North Africa and the islands of Southeast Asia.  Sharia, or Islamic law, is the set of moral and religious laws that all Muslims must follow. It addresses many topics such as Islamic financing. Muslims comprise the majority of the population in about 50 countries, and sharia has a legally recognized status in many of these countries.

The word “bay” means “sale” in Arabic, and “al-mudaf” means “of possession”. The term “bay al-mudaf” therefore means “sale of possession”. The formal definition of bay al-mudaf is a sale contract for a commodity in which the delivery of the commodity and its payment is deferred to a future date. Modern economists call this a forward sale, which is not allowed in Islamic financing.

For example, a bay al-mudaf occurs when the owner of a car agrees to sell it to a buyer at the beginning of next month. The buyer and seller do not actually exchange anything of value at the present. Classical Islamic jurists have considered bay al-mudaf to be an unconcluded sale since money does not change hands at the time the agreement was made to sell the commodity. Such a contract is therefore considered invalid in Islamic finance law.

Sharia places many restrictions on Islamic finance behavior, and specifically forbids bay al-mudaf. The Quran clearly prohibits Islamic finance transactions that create any type of injustice for any of the involved parties. This includes Islamic financial behavior that carries an element of risk, especially when one party has knowledge about the Islamic finance transaction that the other parties do not have.

A hadith is an act or saying that is ascribed to Muhammad. Many hadith describe examples of bay al-mudaf in which the commodity may not exist at the time of its exchange. These examples include selling fish that are still in the sea, a calf that is still in the womb and fruit that has not yet ripened.

This type of Islamic financing behavior is forbidden, but similar Islamic finance transactions may be allowed. For example, a person is clearly prohibited from paying a diver a fixed price for the diver’s next catch since the buyer does not know what he will be paying for at the time of the contract. On the other hand, it is perfectly permissible to hire a diver for a specific period such that the diver’s catch belongs to the buyer.