Bayʿ and salaf in tawarruq-based financing structures
| Contract | Explanation |
|---|---|
| Bayʿ | Step 4 As the owner, the bank sells the commodity to the customer at the bank’s selling price based on murābaḥah (cost-plus-profit). The customer will pay the bank’s selling price on a deferred payment basis. Relationship between bank and customer in bayʿ Bank: Seller Customer: Buyer |
| Salaf | Step 5 Upon sale of the commodity, the customer is then the commodity owner. As per agreed upfront in the Facility Agreement (prior to the execution of commodity murābaḥah trading), the bank shall act as an agent to the customer and sell the commodity to commodity trader 2 on spot basis at cost price. The proceeds of the sale will be channelled to the customer’s designated account. In the event that the customer’s designated account is based on salaf/qard, the arrangement of bayʿ wa salaf can be observed in this structure. Salaf/qarḍ is the underlying contract that justifies the bank’s use of the proceeds for its usual business. Utilization by the bank will normally occur if it is held by the bank for more than a day. Depending on the type of financing, the salaf/qarḍ will be transacted by conduct or by proper documentation such as opening of an account. Relationship between bank and customer in salaf Bank: Borrower Customer: Lender |
| Contract | Explanation |
|---|---|