Islamic Finance – Islamic Capital Market - Inah Contract
The "Inah" deal is what gives rise to the receivable. In accordance with this agreement, the issuer sells the investor an asset for a fixed price, "X," payable immediately, and the investor agrees to buy back the asset at a higher price, "X+Y," payable later. This can be interpreted as either the issuer having a future responsibility to pay "x+y" or as the investor having a receivable that is due and payable. This receivable's liability to be paid has been transformed into securities that investors can purchase. The contract of 'Inah is only recognised in Malaysia in terms of Shari'ah. The Securities Commission (SC) of Malaysia views a 'Inah as a valid contract that could result in the creation of securitized Islamic debt. According to the Shafi'i school of law, which also happens to be the official school of law in Malaysia, Malaysian scholars and authorities have primarily relied on the formal requirements of a valid contract without considering the purpose or content of the contract. According to this methodology, the "Inah contract" is considered to be a valid contract because it includes all necessary components, including an offer and acceptance, an offeror and an offeree, a topic matter, and a consideration. This school of law does not take into account the parties' desire to enable cash financing rather than buy an asset.
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