BAY AL-INAH

Inah means salaf, i.e., contracting a loan (purchasing on credit).

According to some jurists, inah is defined as a sale of a commodity on credit and repurchasing it for a lesser amount in cash. Therefore, there are 2 transactions of sale :

a) At deferred price

b) At a lower cash price

Types of inah

1) Parties make an explicit statement of their intention to enter into a twin contract. Here, parties expressly declare through the contract that the vendor in the first contract that takes place on deferred payment will repurchase the asset at a cash price lower than the former deferred price

This is invalid and impermissible by consensus of all jurists

2) Parties enter into a twin sale where commodity is sold to 2^nd party on credit and seller repurchases it at a cash price lower than the former credit price without any condition in the contracts that necessitate it

Shafi’i – valid, though reprehensible (makruh)

Other jurists – invalid

3) Tripartite arrangement of inah (tawarruq)

Arguments against validity of inah

1) Hadith reported by Abu Hurairah

“One who effects 2 sales in a single sale should take the lower of the two, or riba”

This includes the sale of inah because in inah, 2 sales take place with same contractors

2) Hadith reported by Al-Awzai

“A time will come over people when they will seek to permit riba through sale”

Prohibition of contracts that are in the form of sale, while the purpose happens to be riba – refers to the process of doing something which is legal but the intention is to reach something that is prohibited. As inah sale is modeled under the name of sale, but the result will be similar to the practice of riba, it is prohibited

3) Purpose of inah sale happens to be an exchange of money in unequal quantities with the commodity acting only as a formality – therefore contract = riba.

Here, the parties do not wish to own the commodity through the contract, The purpose and objective solely happens to be an exchange of say, $100 for &120, with the commodity only being involved for the purpose of deception

4) Inah is a kind of transaction that embodies syubhah or suspicion of riba. Suspicion of riba is counted as equal to real riba with regards to prohibition as a precautionary measure

Arguments for validity of inah

1) Two individual sale contracts that are valid and not conditional on each other – permissible

2) A person is free to sell what belongs to him to any person he wishes, therefore, a sale to the person from whom it was bought originally would be permissible

The relevance of intention to inah

Hanafi, Maliki & Hanbali

Contract of inah is invalid as it is considered a process that despite its legal appearance, conceals an inner motive of earning riba

Shafi’i

Validates the contract of inah, refusing to give credence to motive and intention of the parties

However, while the contract is valid, it would be regarded to be prohibited (haram) or reprehensible (makruh) depending on the nature of the parties’ motive