Malaysia tightens rules on divisive Islamic bai inah deals

KUALA LUMPUR/DUBAI, May 21 (Reuters): Malaysia's Securities Commission has tightened rules on bai inah, a popular but divisive Islamic financing contract, in a fresh sign that standards in the world's two main centres for Shariah-compliant banking are slowly converging.
Regulators and scholars in Malaysia and the Gulf have contrasting approaches to Islamic finance; the Gulf tends to be stricter in defining permissible transactions, and banks in the region have therefore shunned bai inah.
But under pressure to develop a cross-border industry, authorities in both centres have shown signs of narrowing their differences in the past few years. For example, some Gulf countries have been moving towards centralising supervision of Islamic banks under a single sharia committee, as Malaysia does.
Treatment of bai inah, which involves the sale and subsequent repurchase of an asset on a deferred-payment basis, may now become another area of convergence.
The structure is commonly used in Malaysia, which follows the Shafi school of Islam, regarded as more flexible in its interpretation of Shariah law.