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

Published date26 August 2019
Date26 August 2019
AuthorUmar 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
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 (arar) 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
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
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
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

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