The term ‘Bai-Muajjal’ has been derived from Arabic words ﻊﻴﺒ and ﻝﺟﺍ (Bai’un and Ajalun). The word ﻊﻴﺒ means purchase and sale and the word ﻝﺟﺍ means a fixed time or a fixed period. ” Bai-Muajjal ” means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit
Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods permissible under Islamic Shari‘ah and Law of the land) to the Buyer at an agreed fixed price payable at a fixed future date in lump sum or within a fixed period by fixed instalments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.
In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells the goods, purchased as per order and specification of the Client, to the client at an agreed price payable at any fixed future date in lump sum or within a fixed period by fixed instalments.
Thus it is a Credit sale of goods by which ownership of the goods is transferred by the Bank to the Client but the payment of sale price by the Client is deferred for a fixed period.
It may be noted here that in case of Bai-Muajjal, the Islamic Bank is a financier to the Client not in the sense that the Bank finances the purchase of goods by the Client, rather it is a financier by deferring the receipt of the sale price of goods, it sells to the Client. If the Bank does not purchase the goods or does not make any purchase agreement with seller, but only makes payment of any goods directly purchased and received by the Client from the seller under Bai-Muajjal Agreement, that will be a remittance/payment of the amount on behalf of the Client, which shall be nothing but a loan to the Client and any excess on this amount shall be nothing but Interest (Riba).
Therefore, purchase of goods by the Bank should be for and on behalf of the Bank and the payment of price of goods by the Bank must be made for and on behalf of the Bank. If in any way the payment of price of goods is turned into a payment for and on behalf of the Client or it is paid to the Client, any excess on it will be Riba
- It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy the same from the Bank on Bai-Muajjal i.e. deferred payment sale at fixed price.
- It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
- It is permissible to take cash / collateral security to Guarantee the implementation of the promise or to indemnify the damages.
- It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a mortgage. or both like any other debt. Mortgage / Guarantee / Cash security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
- Stock and availability of goods is a basic condition for signing a Bai-Muajjal Agreement, Therefore, the Bank must purchase the goods as per specification of the Client to acquire ownership of the same before signing the Bai-Muajjal Agreement with the Client.
- After purchase of goods the Bank must bear the risk of goods until those are actually delivered to the Client.
- The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.
- The Bank may sell the goods at a higher price than the purchase price to earn profit.
- The price once fixed as per agreement and deferred can not be further increased.
- The Bank may sell the goods at one agreed price which will include both the cost price and the profit. Unlike Bai-Murabaha, the Bank may not disclose the cost price and the profit mark-up separately to the Client.