The term ‘Bai-Muajjal’ has been derived from Arabic words ﻊﻴﺒ  and ﻝﺟﺍ (Bai’un and Ajalun). The word  ﻊﻴﺒ  means purchase and sale and the word  ﻝﺟﺍ  means a fixed time or a fixed period. " Bai-Muajjal "  means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit

Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods permissible under Islamic Shari‘ah and Law of the land) to the Buyer at an agreed fixed price payable at a fixed future date in lump sum  or  within a fixed period by fixed instalments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.

In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells the goods, purchased as per order and specification of the Client, to the client at an agreed price payable at any fixed future date in lump sum or within a fixed period by fixed instalments.

Thus it is a Credit sale of goods by which ownership of the goods is transferred by the Bank to the Client but the payment of sale price by the Client is deferred for a fixed period.

It may be noted here that in case of Bai-Muajjal, the Islamic Bank is a financier to the Client not in the sense that the Bank finances the purchase of goods by the Client, rather it is a financier by deferring the receipt of  the sale price of goods, it sells to the Client. If the Bank does not purchase the goods or does not make any purchase agreement with seller, but only makes payment of any goods directly purchased and received by the Client from the seller under Bai-Muajjal Agreement, that will be a remittance/payment of the amount on behalf of the Client, which shall be nothing but a loan to the Client and any excess on this amount shall be nothing but Interest (Riba).

Therefore, purchase of goods by the Bank should be for and on behalf of the Bank and the payment of price of goods by the Bank must be made for and on behalf of the Bank. If in any way the payment of price of goods is turned into a payment for and on behalf of the Client or it is paid to the Client, any excess on it will be Riba