An Islamic finance technique used to provide financing to borrowers on terms compliant with Sharia. In a bai al inah transaction, a lender sells an asset to a buyer (the borrower) on credit for a fixed price (the loan amount) plus a profit element (analogous to the interest amount in a conventional finance transaction). The lender immediately repurchases the asset from the borrower in cash for the fixed price. Following the sale and buy-back:

This technique has been questioned by some Islamic scholars as a legal contrivance intended to overcome the Islamic prohibition against riba and therefore a violation of Sharia principles. However, others have argued that the intention of the parties is immaterial and does not invalidate a technique that is otherwise compliant with Sharia.

Bai al inah is an example of the philosophical differences between the two centers of Islamic finance, which are the Middle East and North Africa (MENA) and Malaysia and Indonesia. While not accepted in the MENA, bai al inah was upheld as a valid technique in a 2009 opinion by the Malaysian Court of Appeals.

For more information on Islamic finance in the US, see Practice Notes:

For more information on Islamic finance in the UK, see Practice notes: