Malaysia's Securities Commission has published new rules for bai' 'inah, a type of Islamic financing contract, in a move that may see Malaysia and the Gulf states converge with regards to shari'ah-compliant banking, Reuters reports.
Bai' 'inah is controversial as in one version of it, a financial institution or individual could contract to sell a borrower an item on credit, but the borrower does not get to keep the item as the institution then buys that item back for a lower amount in cash. The person ends up with some cash, just as if it were a loan, but has to pay the agreed selling price to the financial institution, just as if the difference between the two prices were interest on the loan.
In other versions, the borrower may be entitled to keep the item and have the option to resell it back to the institution.
According to Reuters, Islamic banks from the Gulf tend not to offer bai' 'inah, whereas it is quite common in Malaysia. Agrobank's Agrocash-i, AmBank's Personal Financing-i, HSBC's Amanah Personal Financing-i and Term Financing-i products, and Maybank Islamic's ExeCash-i are all examples of Islamic financing under the bai' 'inah principle.
Reuters said that the new rules do not ban bai' 'inah but make compliance more demanding, ultimately encouraging a shift towards other forms of Islamic financing.
An explanation of the bai' 'inah controversy is here and comments on developments in 2012 here. A list of Islamic capital market statistics for Malaysia can be viewed here.