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    Tawarruq: in Islamic Banking and Finance

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    Mohamad Zawavi Muda
    This document discusses the concept of tawarruq in Islamic banking and finance. Tawarruq refers to the purchase of a commodity on a deferred payment basis, which is then sold for cash to a third party. The document provides definitions of tawarruq from various Islamic banks and scholars. It also gives an example of how a tawarruq transaction works, involving a financial institution purchasing a commodity and then reselling it to a client on a deferred payment basis before the client sells it for cash. The document outlines the stages of a tawarruq transaction and discusses its application and examples in Malaysian Islamic banking.

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    Tawarruq: in Islamic Banking and Finance

    Uploaded by

    Mohamad Zawavi Muda
    276 views15 pages
    This document discusses the concept of tawarruq in Islamic banking and finance. Tawarruq refers to the purchase of a commodity on a deferred payment basis, which is then sold for cash to a third party. The document provides definitions of tawarruq from various Islamic banks and scholars. It also gives an example of how a tawarruq transaction works, involving a financial institution purchasing a commodity and then reselling it to a client on a deferred payment basis before the client sells it for cash. The document outlines the stages of a tawarruq transaction and discusses its application and examples in Malaysian Islamic banking.

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    Tawaruq Presentation -Awie

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    This document discusses the concept of tawarruq in Islamic banking and finance. Tawarruq refers to the purchase of a commodity on a deferred payment basis, which is then sold for cash to a third party. The document provides definitions of tawarruq from various Islamic banks and scholars. It also gives an example of how a tawarruq transaction works, involving a financial institution purchasing a commodity and then reselling it to a client on a deferred payment basis before the client sells it for cash. The document outlines the stages of a tawarruq transaction and discusses its application and examples in Malaysian Islamic banking.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    276 views15 pages

    Tawarruq: in Islamic Banking and Finance

    Uploaded by

    Mohamad Zawavi Muda
    This document discusses the concept of tawarruq in Islamic banking and finance. Tawarruq refers to the purchase of a commodity on a deferred payment basis, which is then sold for cash to a third party. The document provides definitions of tawarruq from various Islamic banks and scholars. It also gives an example of how a tawarruq transaction works, involving a financial institution purchasing a commodity and then reselling it to a client on a deferred payment basis before the client sells it for cash. The document outlines the stages of a tawarruq transaction and discusses its application and examples in Malaysian Islamic banking.

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    of 15

    TAWARRUQ IN ISLAMIC

    BANKING AND FINANCE


    PREPARED BY:

    SAFIZAL BIN AZMI ZP00572


    ABDULLAH BIN OMAR ZP00573
    MOHD ZAWAVI BIN MUDA ZP00575
    NOORUL AMALINA MOHD DAUD ZP00571
    DEFINITION
     Tawarruq is defined in the terminology of the scholars - as buying
    goods with a delayed payment and then selling it to other than the
    seller [from whom one bought the goods] in order to obtain cash
    money

     Tawarruq is an arrangement that involves a purchase of a commodity


    or asset based on deferred payment basis by way of Murabahah – Bank
    Muamalat, Malaysia

     Tawarruq means the purchase of commodity on differed payment basis


    by way of either direct sales or cost plus sales. The commodity is then
    sold for cash to a party other than the original seller – Bank Islam,
    Malaysia
    TAWARRUQ IN ISLAMIC LAW
     The definition of organised tawarruq is a contract to obtain
    money according to the concept of tawarruq in Islamic law .
    The contract is offered by the financial institutions to their
    client that the financial institutions buy specific commodities
    for immediate payment then offer the commodities to their
    clients for deferred payment with extra sum. Then the
    financial institutions offer to the clients to be agents, by
    themselves of other agents, to sell the commodities again in
    the markets for immediate payment. At the end the financial
    institution credit the money in the clients’ accounts.
    EXAMPLE
     For example, F (financial institution) buys 10 tons
    of irons for $20,000,000 from the international
    market, so 1 ton is for $2,000,000. Then, F offers to
    C (clients) a ton of irons for $3,000,000 to be paid
    by instalments within 10 years. When C bought the
    irons, F offers to C to sell, by itself or another agent,
    his irons in behalf of him in the international market
    for $2,000,000, as F have bought it for. At the end F
    credit $2,000,000 in the account of C.
    CENTRAL BANK OF MALAYSIA
    (BNM)
     Tawarruq is the means adopted by banks to lend cash
     Customer buys a commodity from bank from the bank
    Asset based
    under Murabaha which is then sold to third party for cash
    Tawarruq at a lower price
    Monetorisation of
     Customer obtains cash without taking an interest-bearing
    commodity
    loan
    CONCEPT
     This method is permissible according to the majority of scholars, may
    Allaah have mercy on them, but they differed somehow as regards its
    name.

     For this sale to be acceptable, the buyer should fully possess the goods
    before selling them for the second time, and the second sale should be
    separate from the first sale

     Furthermore, one should not sell the goods to the person from whom one
    bought them in principle if the cost of the goods is lesser than the price
    he bought them from him.
    CITATION
     These conditions are based on evidence. 'Abdullaah Ibn 'Umar, may Allah be
    pleased with him, narrated that the Prophet (pbuh), prohibited selling the
    goods unless one has fully taken possession of it beforehand. [Abu Daawood].

     The Prophet (pbuh) said: "It is prohibited to give a loan with a condition that
    the debtor buys goods from the lender; two conditions in one sale (like having
    two prices one in cash payment and another in the delayed payment) are also
    prohibited, and one is not permitted to benefit from any goods unless it
    becomes fully in his possession and he can guarantee, and one is not permitted
    to sell what he does not own." [At-Tirmithi] Imaam Muslim
    DIFFERENCE BETWEEN BAI’ `INAH
    AND TAWARRUQ
    BAI’INAH TAWARRUQ

    Bai’ `Inah is a series of sales Tawarruq is a series of sales


    where a person sells a good to where a person sells a good to
    another person on another person on
    credit and then the latter credit basis and the latter sells
    subsequently sells back the the purchased goods on cash to
    goods to the former on another third
    cash basis at price lower than the party who is not the former
    initial credit sale
    ILUSTRATION
     The client— the mutawarriq—buys X on deferred payment from the IFI and
    sells X for a cash amount less than the deferred price to a third party.

     Also tawarruq enables IFI to guarantee a predetermined percentage rate of


    return to its term-depositor, buying XX from him/her on deferred payment then
    selling XX for cash, the deferred payment being larger than the cash price.

     Every tawarruq transaction creates a debt. Furthermore, the debt a tawarruq


    transaction creates is invariably larger than the cash it transfers to the client-the
    mutawarriq, in the first case, and to the IFI in the second case (mediated in both
    cases by another transaction)
    STAGE OF TAWARRUQ
     Murabaha Stage: The bank and the obligor/customer enter
    into a commodity Murabaha contract that is governed by
    the Murabaha rules of the Shariah Supervisory Board. The
    customer will own either physically or constructively the
    assets subject of the Murabaha contract

     Asset liquidation stage: Customers can choose either to


    sell/liquidate the commodity directly  in the market on his
    own or through an agency agreement through the bank
    HOW DOES IT WORKS?
     Generally speaking, Tawarruq is allowed for those transactions that cannot
    be fulfilled through other Islamic Banking means/structures, such as:

     Transferring obligations from a conventional debt structure to Islamic


    Banking structure
     Working capital finance (Salaries, A/R settlement, adhoc cash shortages)
     Financing intangible personal necessities: Travel (for legitimate purposes),
    Medication, Education and House / real estate maintenance cost

     Bridging short term financing, followed by long term financing using other
    Islamic Banking Structures (Ijarah, Murabaha, Istisna)
    APPLICATION IN MALAYSIA
    Deposit Product and Financing based on Tawarruq
     Islamic financial institution made a proposal to offer deposit product and financing based on the
    concept of tawarruq or commodity murabahah
     In brief, the mechanism of deposit murabahah commodity involves the following
    transactions:
    i. The customer (depositor) appoints bank as an agent to purchase metal commodity from metal
    trader A seller on cash basis in an established metal commodity market;
    ii. The bank will thereafter purchase the metal commodity from the customer on a deferred sale at
    a cost price plus profit margin;
    iii. Next, the bank will sell back the metal commodity to metal trader B in the metal commodity
    market.

    (CENTRAL BANK OF MALAYSIA [BNM])


    EXAMPLE
    Bank Islam Card - Gold & Classic Card-i

    Product Features
     Brand  MasterCard & Visa
     Contract  Tawarruq
     Contract Period  3 years
     Joining Fee  No joining fee
     
    Profit Rate 13.5% to 17.5%  per annum
    EXAMPLE
    Features of Bank Islam Gold & Classic Card
     Based on the Shariah contract that is free from ‘Riba’ and ‘Gharar’
     Tenure of contract is 3 years
     Profit margin is fixed for the whole tenure
     Accept transactions from “HALAL” merchant only
     Financing limit offered is at par with that offered by other card issuers
     Worldwide recognition
     Latest SMART Chip Technology

    Privileges of Bank Islam Gold & Classic Card


     Annual fee waiver for the whole contract, subject to a minimum of 12 transactions per annum
     No compounding elements
     Competitive cash withdrawal fee. A withdrawal fee of 2.5% of the cash withdrawal or RM12(whichever
    is higher). Card members can also perform cash withdrawal up to 50% of financing limit
     Complimentary Group Family Takaful coverage (up to RM100,000) and funeral expenses of RM1,000
    for principal cardholders for the whole period of contract.
     Zakat payments acceptance
    THANK YOU

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