The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 176th Meeting

The SAC of Bank Negara Malaysia in its 176th meeting on 24th May 2017 deliberated on the following:

Combination of Exchange Contract with Loan Contract (Bai` Wa Salaf).

The SAC has resolved that bai wa salaf refers to a combination of an exchange contract including sale or lease contract with loan contract.

The SAC has also noted that there are two categories of bai` wa salaf, of which one is permissible and another is prohibited. The SAC affirmed that among the main reasons (`illah) for the prohibition of bai` wa salaf due to the:

a) Existence of riba element or hilah to riba where there is the contractual benefit to the lender.
b) Stipulation of condition that contradicts objective of the contract.
c) Existence of uncertainty or unknown price.
d) Involvement of two contracts in one transaction.

In relation to the above `illah, the SAC outlined the parameters concerning the prohibited bai` wa salaf as follows:

1. In situation where the transaction involves combination of exchange and loan contracts that contains explicit provision on:

a) inter-conditionality and contingency between both contracts; and
b) exclusive benefit to the lender.

2. Notwithstanding paragraph (1), in the case where loan is an intended (not incidental) contract, combines with an exchange contract that gives exclusive benefit to the lender, it also regarded as prohibited bai` wa salaf though there is no explicit provision on inter-conditionality and contingency between the two contracts.

This statement is to inform the ruling of 176th SAC meeting and its related discussions. The effective date of these rulings would be announced by BNM in the future.