The modification of existing Bai Bithaman Ajil (BBA) instrument by using the concept of qardhul hassan and flexible sharing ratio

Bai Bithaman Ajil (BBA) instrument as the main mode of financing has become the biggest leap in the revolution of real estate purchase. Through many years of developing and refining its usage in financial institutions, BBA has confronted several argumentation and debate among scholars on its conformity towards Shariah. Although there are cases of inconsistency findings when it comes to conformity towards Shariah, BBA is still one of the predominant, accepted mode of financing especially in Malaysia. Therefore, this paper will prove that BBA instrument using the approach of Constant Rate of Return (CRR) is mathematically identical to the conventional approach which is annuity. Besides, this paper will also provide the amortization of CRR. It is proven that CRR formula is likely based on the amortization of conventional approach. Besides, this paper discusses mainly on the incompliance of BBA towards Shariah and hence will introduce the proxy for BBA instruments by implementing profit-loss sharing (PLS). The modified BBA instrument is develop by deliberating the concept of qardhul hassan as its principal payment and as for its rental payment will introduce the sharing ratio to represent the ownership of bank and customers in every periodic payments by using flexible sharing ratio. This modification does not include any increment in the repayment of principal and the profit gained is based solely on the payment of rent to purchase the ownership of the bank. Hence, this modified BBA is much more compliance towards Shariah law because it does not comprise any riba, gharar, or masyir.