9.12. Requirements for murabahah and ijarah contracts

(1) The asset is in existence at the time of sale or lease or, in the case of ijarah, the lease contract is preceded by acquisition of the usufruct of that asset (except if the asset was agreed upon based on a general specification).

(2) The asset is in the legal and constructive possession of the Islamic Bank when it is offered for sale or lease.

(3) The asset is intended to be used by the buyer or lessee for activities or businesses permissible by Shari’ah. If the asset is leased back to its owner in the first lease period, it does not lead to a contract of ’inah.

Guidance

An ’inah (also called bay ’inah or bay-al inah) is a double sale by which the borrower and the lender sell and then resell an asset between them, once for cash and once for a higher price whose payment is deferred. The net result is a loan with interest and, as such, is prohibited by the majority of Shari’ah scholars.

(4) There is no late payment penalty fee or increase in price in exchange for extending or rescheduling the date of payment of accounts receivable or lease receivable, irrespective of whether the obligor is solvent or insolvent.