106 BAI` DAYN SHARIAHRESOLUTIONSINISLAMICFINANCE

Bai` dayn refers to a contract of debt trading created from Shariah compliant
business activities. In the context of Islamic finance, bai` dayn is a method of
sale of debt created under exchange contracts such as murabahah, bai`
bithaman ajil, ijarah, istisna` and others.

67. Repurchase of Negotiable Islamic Debt Certificate

Negotiable Islamic Debt Certificate (NIDC) is a debt certificate that is

structured based on the concept of bai` `inah. Under the NIDC mechanism,
the Islamic financial institution will sell its asset to the customer on a cash
basis. Subsequently, the institution will repurchase the asset on credit at a
higher purchase price. The difference between the sale price and the
purchase price is the amount of profit gained by the customer.

As evidence of indebtedness to the customers of the Islamic financial

institution, the Islamic financial institution will issue NIDC which is tradable at
the secondary market. Upon maturity, the NIDC holder will surrender the
NIDC to the Islamic financial institution and receive its nominal value (the
Islamic financial institution’s purchase price).

In this regard, the SAC was referred to on the following issues:

i. Whether the Islamic financial institution may repurchase the NIDC which it
has issued before the maturity period; and

ii. The suitable method of pricing for the repurchase of the NIDC by the
Islamic financial institution.

Resolution

The SAC, in its 14th meeting dated 8 June 2000, has resolved the following:

i. The Islamic financial institution that issued the NIDC may repurchase the
NIDC before maturity, provided that the NIDC shall be terminated; and

ii. The price (including profit) of the NIDC which is traded before the
maturity date shall be determined according to the agreement
between the seller and the buyer.
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SHARIAHRESOLUTIONSINISLAMICFINANCE

Basis of the Ruling

In general, the NIDC is a debt certificate (syahadah al-dayn) which is a

valuable and tradable asset in the market according to the needs of and
agreement between the certificate holder and the buyer. Debt trading is
allowed with the condition that the debt is clearly in existence. In the context
of NIDC, the sale of debt is permissible because it is conducted between the
Islamic financial institution and the certificate holder.

In this regard, many fiqh schools have granted flexibility in debt trading
between the creditor and the debtor. Majority of scholars among the Hanafi,
Maliki, Syafii and Hanbali schools allow debt trading to the debtor because
there is no issue of non-delivery of object of the contract as the sold debt is
already in the possession of the creditor.106

In addition, the determination of price in a sale is based on the agreement

and mutual consent of the seller and the buyer. Since NIDC is a debt
certificate which is negotiable according to Shariah, the price of the
certificate depends on what has been agreed by the contracting parties.

68. Sale of Debt Arising from Services

Under a service agreement (for example, cleaning services of a building) concluded

between a service company (customer) and another company (third party), the third
party is responsible to settle the payment for the service to be rendered by the
customer. The customer then sells such debt obligation of the third party to the
Islamic financial institution using a debt undertaking letter. The sale of such debt from
a service to be rendered is aimed at obtaining funds from the Islamic financial
institution to finance the service costs to be incurred by the customer.

In this regard, the SAC was referred to on the issue as to whether the
proposed sale of debt arising from a service between the customer and the
Islamic financial institution is permissible.

106
Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, v. 5, p. 3405.