Bay al-Inah

Bay al-Inah (Arabic: بيع العينة, literally 'loan sale') is a sale-and-buyback arrangement where a seller sells an asset to a buyer for a deferred price, then immediately buys back the same asset for a lower spot price — resulting in the seller receiving cash upfront and repaying more later. The net economic effect mirrors an interest-bearing loan, which is why most Shariah scholars (including Hanafi, Maliki, Hanbali, and most Middle Eastern scholars) prohibit it on grounds of Hilah (legal stratagem to circumvent Riba prohibition). The Shafi'i school and some Malaysian scholars permit it with conditions, leading to its historical use in Malaysian Islamic banking. The OIC Islamic Fiqh Academy and AAOIFI classify Bay al-Inah as impermissible. Modern Malaysian Islamic banks have largely replaced Bay al-Inah with Tawarruq (Commodity Murabaha) structures. Bay al-Inah illustrates the tension between form and substance in Shariah compliance — a transaction may be formally permissible while replicating the economic substance of prohibited Riba.