Understanding The Principle Of Bay` Muzayadah in business

Posted on November 24, 2007


Source: Malaysian ICM, Quarterly Bulletin of Malysian Islamic Capital Market, March 2007, 2: 1
Author: Securities Commission

In Islamic financial transactions, price is determined on a willing buyer, willing seller basis. In most instances, the seller will sell to the highest bidder. From a Shariah perspective, a transaction that involves bidding is known as bay` muzayadah.

Bay` muzayadah is the offering of goods for sale in a market by a seller, with numerous buyers competing to offer the highest price. This process ends with the seller selling the goods to the highest bidder. It is similar to an auction and other names for this principle used by past Islamic jurists include bay` fuqara’, bay` man kasadat bidha’atuhu, bay` mahawij, and bay` mafalis.

This concept is relevant in relation to the behaviour of market participants profiteering from price differences. It is also used as an argument to permit speculation so long as it does not contradict Shariah principles.

Reference and evidence of bay` muzayadah

Bay` muzayadah is a form of trading which has existed and has been applied in the muamalat system for a long time. Past Islamic jurists had debated the topic to determine its status. Thus, in evaluating its status from the Shariah aspect, the opinions of the past Islamic jurists were studied.

Athar as basis

The following are the athar (practices based on the Companions of the Prophet s.a.w.) supporting bay` muzayadah: • Imam Bukhari had written a specific topic on the concept and views of `Ata’ who said that bay` muzayadah was practised by society in the sale of war booty.
• Anas had reported the Prophet s.a.w. calling out for customers when selling a carpet and a water vessel. A man offered to buy them for one dirham. The Prophet s.a.w. then asked for a higher bid. Another man offered two dirham and the Prophet s.a.w. sold him the wares.

Opinions of the past Islamic jurists

There were two dividing opinions among past Islamic jurists on the Shariah status of bay` muzayadah. The majority viewed it as permissible by Shariah, while the minority thought otherwise. The main reason for the difference in opinion was the interpretation of the hadith of the Prophet s.a.w., which prohibited bidding on another person’s bidding (saum `ala saum akhihi).

Al-Kasani, a jurist of Hanafi Mazhab, said that bay` muzayadah is not prohibited because the Prophet s.a.w. himself practised it. Ibnu Humam, another jurist of Hanafi Mazhab, also permitted the principle using the same argument.

Ibnu Juzay, a jurist of Maliki Mazhab permitted this principle because it is different from saum `ala saum akhihi which is forbidden, and there is no element of unfairness in choosing goods. Ibnu Qudamah, a jurist of Hanbali Mazhab, stated that bay` muzayadah is permitted according to ijma` based on what was practised by the Prophet s.a.w.

In summary, although there are different views on the permissibility of bay` muzayadah, the majority of jurists allow it.