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Introduction
Bai Bithaman Ajil (BBA) house financing is an Islamic financing concept refers to the sale of assets or goods on deferred payments at a fixed price that includes profit margin to the seller. This concept is commonly used in property or asset financing. Bai Bithaman Ajil (BBA) house financing is the popular concept in countries like Malaysia, Indonesia and Brunei. Customer identifies the asset he wants to purchase and approaches the bank for financing. Under the Bai Bithaman Ajil (BBA) house financing concept, the bank will purchase the asset at cost and sell the same to the customer at cost plus profit on deferred payment basis at the duration and price agreed by both parties payable by fixed installment. The current difference between the fixedrate Bai Bithaman Ajil (BBA) house financing and the conventional mode is that once the profit rate is fixed in the Bai Bithaman Ajil (BBA) house financing, let say at 7% per annum, it will remain the same for the entire duration of financing. The total cost of financing is known upfront at the time of the contract and hence there is no uncertainty or Gharar. Bai Bithaman Ajil (BBA) house financing concept enables the customers to plan their cash flow accurately since their payments would not influence by fluctuating interest rate.
On the other hand, the total cost of the property purchased is determined at the time of contract or 'aqad by applying BBA concept. There is no additional or hidden cost that will change the price of the property purchased. Customers will know exactly when the financing will end. Besides, there will be no compounding of arrears and outstanding penalty charges. Presently there is also no additional/penalty charge on...