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Bai’ Bithaman Ajil

Category — Islamic Finance
Bai’ Bithaman Ajil (arabic - sale at a deferred price) - a contract of sale at a deferred price. In accordance with the terms of such an agreement, one party (the seller) purchases the goods and sells it to the other party (the buyer) at an agreed price, including the costs of the seller. Money for the goods is paid later in whole or in parts. In Islamic banking this contract is a transaction between a bank and a buyer where the bank purchases a commodity and sells it to the buyer at an increased price paid in installments over a period agreed between the two parties.
This financial product appeared quite a long time ago in many Islamic countries, for example, in the 80s in Malaysia, and it is still used to finance clients of Islamic financial institutions. This product can be considered as an equivalent of the Western form of lending. Many banks use this structure for mortgages.
In order to comply with the requirements of compliance with the principles of Islamic finance, the bank simultaneously draws up two sale and purchase agreements with a client who has previously chosen a property and signed a sale and purchase agreement with the seller, paid an initial fee, after which the right of ownership was transferred to him:

1. contract for the purchase of real estate, under which the bank becomes the beneficiary;
2. agreement on the sale of property, under which the bank sells the same property to the client at a higher price in installments.

This agreement is permitted in Islamic law, since by its nature it is a kind of sale agreement, and not a loan agreement. Thus, the operation carried out under such agreement is a trading operation, not a financial one.
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