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THE ISSUE OF RIBA IN BAY BITHAMAN AJIL (BBA)

The issue of riba in banking products offered by the Islamic banks are inter-related with the
issue of hilah. The concept of hilah in Islam was critically analysed in the recent 2011 article
titled Hilah in the Islamic Banking Instruments in Malaysia (Aishath Muneeza, Nik Nurul
Atiqah Nik Yusof, Norariefah Mohd Iqbal, Juyda Noor Mohamad, Vol. 2, 2011). The authors
also described hilah with regards to the views of various Islamic scholars. Hilah or also
known as legal device is usually as an intermediate of reaching some targets. According to
the authors, for Imam Ahmad and Imam Malik, all types of hilah are prohibited.

Whereas, some people including Al-Shatibi considered hilah illegal in general when they are
adopted in an impermissible manner that leads to waiving a ruling or transforming it into
another, which could not have happened except for the hilah that was employed while one is
aware that the means adopted was not supposed to be utilized for this purpose (Al-Shatibi, al-
Muwafaqat fi Usul al-Shariah, Cairo: al-Maktabah al-Tijariyyah, Vol. 2, p. 378-385). In this
article, the authors also specified that BBA is regarded to be a hilah. This is because, the
agreement used in completing the facility which is Property Purchase Agreement (PPA) and
Property Sale Agreement (PSA) are used as a legal device to hide the interest of riba. Hence,
it is the view of the authors that the practice of repurchasing the asset or the house by the
purchaser or borrower with higher price in BBA is not in line with the Shariah principles.

COURT CASES OF RIBA IN BAY BITHAMAN AJIL (BBA)

A) Malayan Banking Bhd v Yakup bin Oje & Anor

There were few of Court cases which involved BBA and the main concern was the issue of
riba element which is the basis of research for this paper. We may first refer to the case of
Malayan Banking Bhd v Yakup bin Oje & Anor whereby in this case, the learned judge
opined that the fixing of profit or definite returns in terms of percentage as opposed
to sharing of profits in Shariah banking activities are more akin to riba than trade. It must be
emphasized that the basic and mostimportant characteristic of Islamic financing is that it
does not deal with fixed interest rate or predetermined profits. It is based on a profit and loss
sharing contract. In crux, it is equity-based financing. In other words, Shariah banking
principles invite banks to be venture capitalists rather than lenders. In this case, the main
issue that came before the court was that whether the bank was entitled to the full profits or
full sale price in the event that the BBA facility it terminated prematurely.

However, the Court had decided that the purchaser or customer should be entitled to rebate
against the whole loan amount accompanied with the interest which is due payable on him for
the monthly instalment in the case of order for sale.

B) Arab-Malaysian Finance Bhd v Taman Ihsan Jaya Sdn Bhd & Ors

In a High Court case of Arab-Malaysian Finance Bhd v Taman Ihsan Jaya Sdn Bhd & Ors,
the well-known Malaysian judge, Abdul Wahab Patil J, held that BBA in house financing is
regarded as a loan transaction and not a sale and purchase transaction. This is because, in
BBA, the defaulting borrower has to pay the whole amount of the sale price which is usually
double the purchase price of the property in the sale purchase agreement made between the
borrower and the housing developer. The Court further mentioned that, BBA not only contain
riba element, but also considered as unjustifiable to the purchaser or borrower. It was also
stated that, the transaction which involved the act of the bank purchasing the asset or property
directly from its customer and later sold the same to the customer with deferred payment at a
higher price is not a honest sale but a mere financing transaction. Such profit earned from the
BBA facility is considered to be contrary to the Islamic Banking Act 1983 or the Banking
Financial Institutions Act 1989, as the case may be. Through this case, we can see that the
learned judge was of the same opinion with the previous learned judge in the case of Malayan
Banking Bhd v Yakup bin Oje & Anor whereby an Islamic financing scheme must not
contain any prohibited elements under the religion of Islam especially as regard to riba or
usury.

As the main concern which triggered the BBA facility to be ruled as upholding riba` element,
the learned judge also specified that the bank`s selling price should not be excessive to the
extent that it would burdened the purchaser which is similar with the interest charged on a
loan transaction by the conventional banks. This is because, if the amount is found to
excessive, such facility offered by the bank shall be regarded as contrary to the Islamic
banking principles. The fact that the parties had agreed to the excessive selling price is not
the main reason for the court not to examine the substance of the contract in order to examine
whether the terms are consistent with the religion of Islam (Mohamed, 2008).
C) Bank Islam Malaysia Bhd v Lim Kok Hoe & Anor

In a year after the case, another case which the principle of the case regarding BBA facility
until now is not challenged or reversed. The main discussion of the legality of BBA as a sale
transaction remained in this 2009 Court case. We may refer to the case of Bank Islam
Malaysia Bhd v Lim Kok Hoe & Anor. The Court had made a clear declaration whereby
BBA facility is not a loan transaction but a real sale transaction. According to the judges, it is
not appropriate to compare BBA facility with a conventional loan transaction. Both BBA
facility and conventional loan transaction are different instruments as BBA facility involved
sale agreement while conventional loan transaction involved money lending transaction.

Another point derived by the trial judge in this case which turned the Islamic banking and
finance industry in Malaysia into a tailspin is that, such BBA facility is not acceptable by the
four main mazhabs and thus it is also not acceptable in the religion of Islam. It seemed that
the trial judge had misinterpreted the definition of Section 2 of the Islamic Banking Act 1983
pertaining to the definition of islamic banking business. This is because, BBA was rejected
by the majority of the mazhabs except the Shafies. Nevertheless, the learned judge had ruled
that, the trial judge was erred in law and the issue whether the facility is in accordance with
the Shariah principles is not for the Civil courts to rule. It needs considerations by the
eminent jurists who are properly qualified in the Islamic jurisprudence. The judges in this
case also mentioned about the role and presence of Shariah Advisory Body in each of the
Islamic banks for the institutions to be granted Islamic banking licence.