Legal Issues in Sharīʿah-compliant Home Financing in Malaysia: A Case Study of a Bai Bithaman Ājil Contract

• Published date: 26 August 2019
• Date: 26 August 2019
• DOI: https://doi.org/10.1108/978-1-78973-545-120191016
• Pages: 171-192
• Author: Umar A. Oseni,Mohd Fairullazi Ayob,Khairuddin Abdul Rashid

Chapter 10

Legal Issues in Sharīʿah-compliant

Home Financing in Malaysia:

A Case Study of a Bai Bithaman

Ājil Contract

Umar A. Oseni, Mohd Fairullazi Ayob and

Khairuddin Abdul Rashid

Abstract

This chapter provides a case study on a Sharīʿah-compliant home facil-

ity contract based on the Bai Bithaman Ājil (BBA) contract, generally

used by Islamic banks in Malaysia. The study emphasises on the need to

comply with the existing legal framework and execute relevant contracts

in line with the Sharīʿah resolutions of the Sharīʿah Advisory Council of

Bank Negara Malaysia without causing harm (ḍarar) to the customers

or introducing uncertain elements or procedures (gharar) in the execu-

tion of the agreements. This chapter is based on doctrinal analysis of

the relevant issues as well as a qualitative legal research through content

analysis of relevant BBA agreements, case law as well as statutory pro-

visions. The case study used in this chapter is completely anonymised.

The study nds that the execution of BBA agreements in Malaysia leaves

much to be desired. Even though the regulatory framework for Sharīʿah-

compliant home nancing in Malaysia is robust, there are some legal and

Sharīʿah considerations which the stakeholders need to look into in or-

der to project Malaysia as the main global hub of Islamic nance. This

study demonstrates the need for proper Sharīʿah auditing of the practical

execution of BBA agreements to avoid an incorporated element of gha-

rar at the time of execution of the agreements, which might ultimately

lead to unforeseen reputation risks for the bank. Though there are several

studies on the Sharīʿah, nancing and accounting aspects of the BBA

home facility agreement, this study focusses on both Sharīʿah and legal

Emerging Issues in Islamic Finance Law and Practice in Malaysia, 171–192

Copyright © 2019 by Emerald Publishing Limited

All rights of reproduction in any form reserved

doi:10.1108/978-1-78973-545-120191016

172 Umar A. Oseni et al.

issues, using the case study approach. The recommendations are expected

to provide a good policy framework for the stakeholders in the Islamic

nancial services industry in Malaysia.

Keywords: Islamic banking; home nancing; Bai Bithaman Ājil;

Islamic law; legal documentation; Malaysia

Introduction

Being a basic necessity in life, a home or shelter is a fundamental need in life for

peace of mind. This is why everyone aspires to have a decent home where he or

she will reside with the entire family. Since the time immemorial, people have

been fullling this need through three major ways: building the house from the

scratch, purchasing the house or renting it from the owners (Meera & Dzuljastri,

2005). In a prophetic saying narrated by Uthman ibn Affan, it was reported that

every human being has right to basic necessities of life, and these include shel-

ter (Zaenal, Shaai, & Ismail, 2014). With the skyrocketing prices of houses in

the modern cities, it has become practically difcult to full this important need

through a direct purchase using cash. In order to overcome this challenge, mod-

ern nancial institutions have played a signicant role of nancial intermediation

in facilitating such transactions. The aversion to interest-based transactions in

the conventional nancing products led to the structuring of Sharīʿah-complaint

housing products, which are structured in accordance with traditional modes of

nancing in Islamic commercial law.

With the increasing prominence of Sharīʿah-compliant products in the inter-

national nancial system and the aspiration of Malaysia to become a global

hub for Islamic nance products, there are some legal considerations relating to

Sharīʿah-compliant housing facility contracts that require the attention of the

major stakeholders in the light of provisions of the Islamic Financial Services

Act 2013 (IFSA 2013). These considerations do not necessarily relate to the exist-

ing legal framework or the Sharīʿah rulings of learned scholars, but are relevant

in the execution of relevant housing facility agreements by the Islamic nancial

institutions.

In Malaysia, home nancing is considered the most popular retail banking

product since the time the rst Islamic Bank opened its doors to the public in

1983. Though there are various products developed overtime, the most popular

home nancing product is the Bai Bithaman Ājil (BBA) home nancing contract

which is as old as the Islamic banking industry in Malaysia (Engku Ali, 2009).

Therefore, this study examines Sharīʿah-compliant home facility contracts in

Malaysia with a specic reference to an anonymised case study of a BBA contract

that has metamorphosed into an unsettled dispute between a popular bank in

Kuala Lumpur and an informed customer. It is pertinent to observe that cases, as

the one selected here as a case study, have been litigated at the appropriate courts

in Malaysia previously. One of such cases is Bank Islam Malaysia Bhd v. Lim Kok

Hoe & Anor and other appeals [2009] 6 MLJ 839. One only wonders why such