Contracts and Deals in Islamic Finance: A User s Guide to Cash Flows, Balance Sheets, and Capital Structures

Chapter 9Bai al Dayn

Bai al dayn is essentially a contract of the sale of debt. Being a contract of sale, there must be all the elements or pillars of a sales contract such as legitimacy of contracting parties, and offer and acceptance. Between the contracting parties there must be a subject matter of sale, a price, and delivery of the asset. The asset in this case, however, is a financial asset or a debt.

The Majelle defined dayn as a matter that is due, that is, the money owed by a certain debtor.¹ Shariah scholars have defined debt to include any moneys owed in a contract of qard, murabahah, ijara, bai bithman ajil, and many others.² Any basket of receivables owed by one party to another, whether they are generated by a deferred credit sale, a contract of rent, or a contract of loan, is considered to be debt.

Shariah allows the transfer of debt though what it is called the assignment of debt or hawalah. This trading of debt at par is allowed unanimously by all Islamic jurists as it does not give any benefit to the purchaser and is free of elements such as riba, gharar, and maiser.³ It is considered that the bai al dayn purpose is genuine and it is in the benefit of the parties involved (maslahah).⁴ The issue here is to sell the debt to a third party that is a nondebtor and on a discounted value. Depending on the underlying essence inside the debt, most shariah scholars are of the opinion that selling a money-based debt to a third party on a discounted basis is not accepted ...