This structure is required in the face of today’s difficulty in addressing liquidity requirements. removing difficulty as well as meeting the Maqasid of Shariah for protection of property. The Legal Maxim used is that Tawarruq satisfies people needs and meets their requirements i.e. There has been on-going questions on the validity of the contract and the rationale for doing so. The main argument against Tawarruq arrangement with Commodity Murabaha is the same one that the structure is “arranged” and therefore is not a genuine economic transaction.īut for proponents of both Tawarruq arrangements (even for Bai Inah), the question is that, unless a structure exists that provides cash while in the absence of valuable assets, should Islamic bankers continue to offer these structures in the meanwhile? Or divert the customer to conventional banking product which is clearly involved in Riba’? There are no easy answers to this as it depends on which side of the fence you are standing. Recent pronouncements by some scholars that the Tawarruq arrangement is not permissible only highlights the challenges in Islamic Banking. Lately however, even this contract is put under pressure by scholars as something nearing its shelf life. The structures of Bai-Inah and Commodity Murabaha are introduced as possible solutions.The word Tawarruq is also greatly been used to reflect transactions involving Commodity Murabaha.Īlthough the Bai-Inah structure is generally rejected by international scholars except for in Malaysia, the remaining Tawarruq arrangement with Commodity Murabaha are still accepted throughout the Islamic Banking world.

The main challenge for a customer requiring cash for their use but without any collateral or asset to enable the economic transaction to take effect, Banks have obtained alternative structures to provide the customers with the much-needed cash. As with all Islamic transactions in the market, an underlying asset is a key requirement to ensure the transaction is valid in the Islamic Banking world. Commonly used for : Asset Financing, Working Capital Financing, Revolving Credit, Islamic Overdraft, Personal Financing, Home Financing, Credit Cards, Profit Rate Swaps, Interbank Placements.įor the past few years, controversies have arisen over the use of several working capital products, which aims to provide one party with cash and another with debt.Secondary contract : Musawamah (simple sale), Wakalah (agency).Definition : Monetisation or Cost plus sale using commodities.Contract : Tawarruq Arrangement or Commodity Murabahah Contract.

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