English for ba’i al-inah (also ba’i al-einah); a contract that involves the sale and buy back of an object (commodity, asset, etc) by the same two parties. More specifically, under an inah contract, one party acts as a seller and the other as a buyer in the first stage then, in the second stage, the seller becomes a buyer and the buyer a seller of the same object for two different prices. The price in the first leg of the transaction- i.e., the cash price- is lower than the price in the second leg- i.e., the deferred sale price, with the difference being the implicit interest amount received by the financier (seller-cum-buyer) and paid by the borrower (buyer-cum-seller). This is because the real purpose of this transaction is not possession of the underlying object, but rather obtaining immediate cash. In other words, it is said to be commercially fictitious or commercial in form and purely financial in substance.
The financier receives time-value-based compensation in the form of the difference between the deferred price and the spot price. Therefore, a typical inah transaction amounts to riba-based borrowing and lending and so is prohibited by shari’a. In essence, shari’a is keen to prohibit the combination of two sales of the same object between the same counterparties. The profit differential and the period between deferred and spot payments are an indirect means of structuring an interest-bearing loan (qardh ribawi). Notwithstanding, in some jurisdictions (East-Asian countries such as Malaysia), inah is legally enacted and widely approved as a form of financing transactions (personal financing, credit cards, negotiable notes, government investment issues, etc).
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