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Issues on the Permissibility of Tawarruq Contracts Draft 1

Issues on the Permissibility of Tawarruq Contracts Draft 1

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PhD in Islamic Finance

Issues on the Permissibility of Tawarruq Contracts

Fiqh Muamalat Semester January 2010

By: Abd Aziz Bin Mohd Nor Matric No: 0900334

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.................4 3..........................................5 4........................ Definitions of Tawarruq.........................................................8 6................................... Types of Tawarruq Contracts...................Table of Contents 1........... Opinions and Issues of Tawarruq Contracts..........................................17 3 .. Critical Observations.....................4 2........ Differences and Similarities between Al-‘Inah and Tawarruq Contracts.............................7 5.............. Abstract..................................................

Shariah prohibits the payment or acceptance of interest fees for the lending and accepting of money respectively. Definitions of Tawarruq 2. with the purpose of getting the paper (liquidity) and not the commodity. p1 4 . The term ‘paper’ here means different types of money. Dr. ‘paper replacing monies/paper money’. This paper will discuss the issues relating to tawarruq contracts including types of tawarruq contracts as well as the related juristic arguments that allows or prohibits tawarruq. Tawarruq is one of the Islamic banking products and with the phenomenal growth of Islamic banking. the use of tawarruq has grown from its original classical form to many other forms and thus inviteing controversies. Ibrahim Fadhil Dabu. Tawarruq. It was so called. Shariah prohibits transaction which contain the elements of gharar (uncertainties or ambiguities) and maisir (gambling) but encourages risk taking (ghorm) and kasb (value added) so that transactions could have iwad (equivalent counter value) in order to earn legitimate ghonm (profit). Abstract Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Shariah) and its practical application through the development of Islamic economics. In addition.1 Literal Meaning This term is derived from the word paper and dirham coined from silver or money minted from dirham. 2.1. Interest for specific terms. because the buyers of a certain commodity sell that commodity using paper. Its Reality and Types. Its plural is ‘awraaq’ i.e.1 2. as well as investing in businesses that provide goods or services considered contrary to its principles.2 Technical Meaning 1 Prof.

in what he 2 Dr. however. Differences and Similarities between Al-‘Inah and Tawarruq Contracts The scholars have differed in their technical definitions of al-‘inah due to their differences of opinion regarding its forms. But as for tawarruq.is that al-‘inah implies the act. it is not the buyer's interest to utilize or benefit the purchased asset but rather to facilitate him to attain liquidity (waraqah maliah). This transaction is called tawarruq mainly because when the buyer purchases the asset on deferred terms. which will be mentioned soon. one of its most famous definitions among early scholars was: “One person sells a commodity to another for a specific price with payment delayed until a fixed date. but rather in the free disposal of the buyer. In case of al-‘inah. for the purpose of obtaining cash.on the Hanbali usage . p11 5 . then buys it at a current price lesser than the selling price. but rather the first buyer will have to sell the commodity to the third person. p16 3 Tawarruq in the Banking System: A Critical Analytical Study of Juristic Views on the Topic. the buyer is not the seller himself. Its technical meaning varies according to its different types. then buys it back from him at a lower price for cash. The third party has no connection with the first seller. 3. while in the case of tawarruq.2 Tawarruq is a term commonly used in the books of the Hanbali school of thought while other schools mention the form of tawarruq under the rubric of bay‘ al-‘inah (credit sale).3 The difference between al-‘inah and tawarruq . the commodity will go back to the first seller.Tawarruq is actually a sale contract whereby a buyer buys an asset from a seller with deferred payment and subsequently sells the asset to the third party on cash with a price lesser than the deferred price. where a person sells a commodity on credit. Asyraf Wajdi Dusuki (2007). Commodity Murabahah Programme (CMP): An Innovative Approach to Liquidity Management. it will not return to the first seller.

Second: The aim in both is to acquire cash. According to the Hanbali School of Thought. The first party buys the commodity from the seller. ‘Inah is prohibited by majority of the jurists. the seller. there are three parties.4 According to the Hanafi School of Thought. except that those who mentioned it among the forms of al-‘inah. Third: Both transactions adopt a trick or way out to avoid any involvement in loaning connected with interest. on deferred basis or vice versa. From the previous definitions.e. and then resells it to the original seller for cash. the seller is the party who buys the commodity at a certain price. ‘inah happens when someone sells a commodity at a deferred price. According to the Maliki School of Thought. only viewed that it shares things with al-‘inah in commons. and then buys it back from him at a price lesser than the deferred price. But in tawarruq. i. at a price higher than the current market price. buyer and the third party. and the buyer is the second party who buys the commodity at a higher price. because it leads to riba.possesses to sell it in the market at a current price. according to the jurists. ‘inah happens when someone sells a commodity of ten Dinar in cash to another person. According to the Shafi’i School of Thought. ‘inah happens when someone sells a commodity to another on deferred basis (for a known period). First similarity: The first seller will sell the commodity on credit. i. and then sells it to the third party who is not the first seller. It falls within the prevention of things that 4 Taqi Usmani (2005) 6 . in which the second sale price is less than the deferred sale price. He then buys it for cash (from the same purchaser) at a lesser price or vice versa. ‘Inah consists of two parties. so as to acquire cash. He then buys it from him (the same person) at twenty Dinar. it has been shown that there is a difference between ‘inah and tawarruq. and on deferred payment.e. ‘inah is when someone buys something at a known price (on deferred basis).

’” (Reported by Ahmad). Then I bought it from him for six hundred Dirham.e.5 The similarities are as follows: • • • The first seller will sell the commodity on credit. p7 6 7 .Verdicts on At-Tawarruq and Its Banking Applications. a maid and wife of Zaid ibn Arqom went to Aisha. Types of Tawarruq Contracts Jurists have mentioned three types of tawarruq contracts as follows:7 a) Al-Tawarruq al-Fardi (Tawarruq on an Individual Basis) 5 Prof. The aim in both is to acquire cash. Tawaruq. ‘when you deal with ‘inah. Ibrahim Fadhil Dabu (2007). i.6 4. Both transactions adopt a trick or way out to avoid any involvement in loaning connected with interest. the path that leads to haram is also haram. p2-4 Muhammad Taqi Uthmani (2009). “I.from ‘Aliyah bint Aifa’. Its Reality and Types. tell Zaid ibn Arqom that he had spoilt his jihad with the Prophet until he repents. p2 7 Sa’id Bouheraoua (?).may Allah have mercy upon her . Allah will then send unto you a disgrace which will not be raised for you until you return to your religion. the maid said. For example. ‘shame to what you bought. ‘Inah leads to riba. who says that. ‘I sold a child of Zaid ibn Arqom at three hundred Dirham to the Ata. She (Aisha) said to her. Dr. The prohibition of ‘inah is reported in a Hadith of Ibn Umar-radiyallahu anhuma. because there is a difference in the price. that she said. “The Prophet pbuh says. Tawarruq in the Banking System: A Critical Analytical Study of Juristic Views on the Topic.causes prohibited actions (saddu zhara’i).’” (Reported by Abu Dawud). and pursue the tails of cow and leave jihad in the way of Allah. There is also the Hadith of Aisha . between the cash and deferred price. at a price higher than the current market price.

He does so by selling a commodity to him for a delayed payment.The Islamic Fiqh Academy defined it as: “the purchase of a commodity possessed and owned by the seller for a delayed payment.” b) Al-Tawarruq al-Munazzam (Organized Tawarruq) This is when the seller handles the process by which cash is acquired for the mutawarriq (the seeker of cash). p66 8 . then selling it on his behalf for cash. Opinions and Issues of Tawarruq Contracts Similar to other forms of sales contracts in Islamic banking. In order to make a tawarruq contract permissible. The subject of sale must be in the ownership of the seller at the time of sale. The basic rules of sales in Islam are as follows8: i. 8 Taqi Usmani (1998). tawarruq is also based on the trading or commercial or sales contract of al-bay’. taking the payment from the buyer and delivering it to the mutawarriq. c) Al-Tawarruq al-Masrafi (Banking Tawarruq) It is the performance by the bank of a formally circumscribed procedure in which a commodity (other than gold or silver) from an international commodity market or some other market is sold to the mutawarriq for a delayed payment. Introduction to Islamic Finance p. The subject of sale must be in existence at the time of sale. it should conform to the well-known rules of al-bay’ (sale). whereupon the buyer will resell the commodity for cash to other than the original seller in order to acquire cash (al-wariq). whereupon the bank will deliver its payment to the mutawarriq. 5. on the binding condition―either by its stipulation in the contract or by the rule of custom―that the bank will represent him in selling it to another buyer for cash. ii.

vi. The subject of sale must be specifically known and identified to the buyer. a prominent scholar. like pork. The subject of sale must be a property of value. p59 9 . which is prohibited and current sales. the practice is just to record those sales on the computer and then. which do not take into consideration the rules of sales as mentioned earlier. There are many sales. wine etc. The sale must be unconditional.iii. the sales are concluded by exchanging papers of sale. The subject of sale must be in the physical or constructive possession of the seller when he sells it to another person. Applications and Rules of Banking Tawarruq. vii. However. The delivery of the sold commodity to the buyer must be certain and should not depend on a contingency or chance. The sale must be instant and absolute. The sales are classified into future sales. iv. where the commodities are not delivered to the buyers. 9 Taqi Usmani (2008). The subject of sale should not be a thing which is not used except for a haram purpose.1 Juristic Opinion of Sheikh Taqi Usmani In his research. Actually. viii. v. such as the subject matter should be precisely determined and should be owned by the seller. 5. the papers do represent certain commodities. The certainty of price is a necessary condition for the validity of a sale. However. Very often. a clearance happens for the sales. ix. the papers represent the right of the paper holder to collect a quantity of commodity from the warehouses that have thousands of tonnes of the commodity. x. Sheikh Taqi Usmani clarified and expressed reservation on organized tawarruq. on the basis of price differentials. as follows9: a. as practised in the international commodities bourses which are not genuine sales.

it is not allowed for the bank to be the agent of the buyer (mustawriq) to possess the commodity on behalf of the buyer. Hence. this process is not Shari’ah-compliant. who is definitely not the seller. c.e. i. the quantity that is stated on the paper is not distinguished from other quantities. the parties involved should negotiate with the brokers and trader in these markets. However. before the buyer can sell it again. Furthermore. so that legal sales are concluded. b. According to the same rules of sales above. and even before his quantity can be distinguished from other quantities.Furthermore. But the practice is not like that. Sheikh Taqi Usmani added that there should be fiqh scholars supervising the transactions of these markets. due to guarantee of profit for something that is not possessed. as far as possible. Suppose that the mechanism of such markets is very strict. the bank is the seller. which are available in the warehouses. If the mechanism is so. dealing with these markets is not permissible. The prevailing practice is that the buyer sells the quantity before he possesses it. the bank has to hand over the commodity to the buyer (mustawriq) or to the buyer’s agent. either by himself or through his agent. Furthermore. Therefore. If that cannot be achieved. then the sale is valid because the mechanism fulfills the condition that states the buyer must possess the commodity. for adherence to the Shari’ah principles. that can be done by setting up a special way and formulating new contracts by Shari’ah committees. the sold quantity should be owned by the buyer. However. Suppose that the broker is the agent for the buyer (mustawriq) and the broker possesses the commodity from the bank before he sells 10 . either for tawarruq or for anything else. where the mechanism satisfies the legal conditions of a sale. then the commodity must be delivered to the buyer before he sells it to someone else. and the process of a tawarruq sale takes place.

I am sure that the appearance of the name of a buyer on a computer screen does not transfer the ownership and liability to him. if the agreement is concluded after the bank possesses the commodity and before the commodity is handed over to mustwriq. the mustawriq can assign the bank or the broker to sell the commodity to a third party. To me. The second way is that there should be two brokers. then the sale is void. i. adhering to the previous conditions in the international commodities markets is so difficult. then the sale is void as well. The broker purchases the commodity and he possesses it from first seller on behalf of the bank. the bank has to hand over the commodity to the mustawriq. Obviously. there are two brokers. Therefore. This is fine. Therefore. Then. since the bank is still liable for the commodity. Legally. Additionally. and they should not allow anyone to use the first approach. The first way is initially. but the problem is that the broker himself is the bank’s agent as well. considering the difficulty of applying the first approach. There are two legal ways to make this sale Shari’ah-compliant. before judging on 11 . the broker assumes the position of the bank. d. one is the agent of the mustawriq and the other is the bank’s agent. if there is an upfront agreement that states that the mustawriq has to appoint the bank as his agent. the broker cannot be the agent for the mustawriq to possess the commodity. the second approach should be adopted by Shari’ah committees. So far. he sells it to the mustawriq. Thus.e. The procedures of executing sales in modern bourses are just taking place on the screens of computers.it to the third party. one is to buy the commodity on behalf of the bank and another to possess the commodity and sell it on behalf of the mustawriq. The moment the bank is no longer liable for the commodity. However.

5. Actually. Without a doubt. This makes some scholars say that since there is any one school of thought that permits tawarruq.such contracts. the Fiqh Academy later clarified this and specified its concerns with Tawarruq as practiced in their 17th Session. because it is not the same as the classical tawarruq that has been permitted by the jurists. it is not acceptable to say that organized tawarruq is the same as classical tawarruq. i. Shari’ah objectives and social interests. there is no contractual link at all between the two operations. another separate operation commences. It is obvious from the above mentioned that Sheikh Taqi Usmani confirmed what is going on in the banks today and that leads to lending with interest. there is no need to crack down on people and to open up an argument about the validity of tawarruq. The conclusion is that organized tawarruq is not permissible. in light of the laws and rules.g. However. because it is evidenced by text.e. 10 Nikan Firoozye (2009). this opinion is notable. Consequently. p? 12 . we cannot say that organized tawarruq is permissible. But due to problems with specific structures (including placing conditions in each of the sales contracts). Tawarruq : Shariah Risk or Banking Conundrum. transference of title) made certain Organized Tawarruq programs non-compliant. there should be an independent study for contracts that happens through computers. Briefly. claiming that some forms of agency agreements and underlying procedures (e. which is permitted by the jurists. After this is done. by means of tawarruq.2 Islamic Fiqh Academy Rulings Related to Tawarruq Contracts In its 15th session the OIC Fiqh Academy issued a statement about the permissibility of Tawarruq10. the tawarruq that has been approved by jurists is based on an individual who performs a sale that is by fulfilling the pillars of selling and buying. legal maxims..

discussed the issue on tawarruq for the first time. iii. The Islamic Fiqh Academy has approved the use of tawarruq as one of the Islamic banking products. as mentioned by the majority of scholars. Thirdly. as follows: i. tawarruq is permissible in Islamic law. If he does that. Specifically. as Allah says in Surah al-Baqarah. this has forced the need for the Islamic Fiqh Academy to issue another fatwa on tawarruq. November 1998.my/fatwas/commercial-banking/financing/tawarruq/426-rules-oftawarruq. “… and Allah has permitted sale and forbidden usury. This makes the contract of bay’ inah unlawful. Secondly.html 13 . which is in the possession of the seller. Firstly. either directly or indirectly. 11 http://www. in its 15th session. Subsequently. because it is a financial tool that is necessary for the settlement of one’s debt or matrimonial expenses or others. the years following the first ruling on tawarruq has seen the proliferation on the use of tawarruq and the birth of new forms of tawarruq contracts. The academy has decided. it has approved the use of Al-Tawarruq al-Fardi (Tawarruq on an Individual Basis) in the Islamic banks. either intentionally or in form. the permissibility of tawarruq is subjected to the buyer not selling the asset for less than its original price which he had bought from the first seller. then he has done a sale and buyback transaction (bay’ inah).isra. ii. The new form of tawarruq contracts are Al-Tawarruq al-Munazzam (Organized Tawarruq) and Al-Tawarruq al-Masrafi (Banking Tawarruq) products.” In tawarruq. usury does not appear. This is because the origin of sales is permissibility. tawarruq is the purchase of asset. which is forbidden in Islamic law.11 However. on deferred payments and then selling it to another party on the spot. which was held in Makkah al-Mukarramah on Saturday. in order to get cash (al-wariq).In its first ruling on tawarruq. The Islamic Fiqh Academy. as it consists of a trick that leads to usury.

i. Usually. but in this case. • The contemporary definition on organized tawarruq is: when a person (mustawriq) buys merchandise from a local or international market on deferred price basis. Simultaneously. and it acts as a client. • It is not permissible to execute both tawarruq (organised and reversed) because simultaneous transactions occurs between the financier and the mustawriq. provided that it complies with the Shari’ah requirements on sale (bay’).php?option=com_content&view=article&id=355:oic-fiqhacademy-ruled-organised-tawarruq-impermissible&catid=11:tawarruq&Itemid=15 14 . the resolutions were presented. after listening to the discussions that revolved about the applications of tawarruq. This is the classical tawarruq. he sells the merchandise to a third party. Hence. The academy issued the following rulings: 1. Furthermore. The financier arranges the sale agreement either himself or through his agent. the mustawriq and the financier execute the transactions.isra. which is permissible.my/index. the (mustawriq) is the financial institution. • Reverse tawarruq: it is similar to organized tawarruq. the transaction is considered as containing the element of riba. This is considered a deception. in order to get the additional quick cash from the contract. in its 19th session which was held in Sharjah. tawarruq can be defined as: a person (mustawriq) who buys merchandise at a deferred price.e.12 12 http://www. its meaning and its type (classical applications and organized tawarruq). usually at a lower spot price. according to the Fiqh jurists. in exchange for a financial obligation. United Arab Emirates. in order to sell it in cash at a lower price. whether it is done explicitly or implicitly or based on common practice. Types of tawarruq and its juristic rulings: • Technically. decided that after having reviewed the research papers that were presented to the Council regarding the topic of tawarruq. on 26 – 30 April 2009. with the aim to obtain cash.The International Council of Fiqh Academy. a resolution were passed.

If the current situation is not rectified. it will also ensure that the progress and actualization of the socioeconomic objectives of the Muslim world.14 The same council went further in revisiting its ruling on Bai’ Inah at their Regional Shariah Dialogue which was held on 28th and 29th June 2006. In this meeting. Again these institutions are encouraged to set up special Qard Hasan Fund.my/guidelines/01_banking/04_prudential_stds/ 07_shariah_resolution.bnm.13 The same council in its 8th meeting held on 12th December 1998 resolved that that Bai` `Inah transaction in the Islamic Inter-Bank Money Market is permissible.15 13 http://www.gov. in order to conform to Shari’ah rules and so that the techniques will ensure the actualization of the Shari’ah objectives (maqasid Shari’ah). p15 15 Ibid.The academy further recommended that to ensure that Islamic banking and financial institutions adopt investment and financing techniques that are Shari’ah-compliant in all its activities. p16-17 15 . they should avoid all dubious and prohibited financial techniques. 5.pdf. Islamic banking should provide Qard Hasan (benevolent loans) to needy customers in order to discourage them from relying on Tawarruq instead of Qard Hasan. the Muslim world would continue to face serious challenges and economic imbalances that will never end.3 Selected Juristic Opinions of Scholars that Permits All Types of Tawarruq The Shariah Advisory Council of Bank Negara Malaysia in its 51st meeting held on 28th July 2005 resolved that deposit product and financing based on the concept of tawarruq is known as commodity murabahah is permissible. Furthermore. p12 14 Ibid. the council members decided that tawarruq and bai’ ‘nah shall be ruled similarly since the basis relied upon to justify the permissibility of tawarruq is similar with the basis to justify the permissibility of bai` `inah.

his concern is that organized tawarruq focuses on debt creation rather than economic activity. organized tawarruq does not violate Islamic law principles as there is nothing wrong with the transaction itself. For those who conclude that organized tawarruq is permissible has provided justification based on the premise that the objective in a tawarruq transaction is the intention to refrain from interest. his intention is to abstain from unlawful dealing. just the opposite. there is no need to resort to a ruse because it is available legally through banks in the form of a loan. Mohamed Akram Laldin. Muhammad Ali Elgari.In this meeting too. Someone may say that his intention is not to acquire the commodity. al-Tatbiqat al-Masrafiyyah li al-Tawarruq wa Mada Shar’iyyayatuha was Dawruha al-Ijabi. He encourages further 16 Dr Muhammad Ali Elgari. p99 16 . He only abandoned that and took tawarruq in order to refrain from the unlawful. There is no doubt that the modern mutawarriq (someone who deals with tawarruq) does not intend to engage in unlawful dealing. and this is what makes it a ruse. who is executive director of ISRA. not to engage in it. In fact. If he intended to be unlawful. his sole intention is to get its cash value.”16 According to Dr. is the intention. Dr. The answer to this is that such a factor has not effect because it is a lawful objective. which is a key tenet of Islamic finance. argues that: “Neither tawarruq nor any other transaction will be considered as deceptive except if one intends to achieve an unlawful aim at it because the fundamental constituent of a ruse (hilah). as was mentioned by Ibn Taymiyah. an ISRA Council of Scholars member. the complications and expenses of a loan are less than that of tawarruq. However. the council acknowledges that the permissibility of bai` `inah and tawarruq is still a matter of juristic disagreement among the Shariah scholars backed by their own basis of justifications.

Tawarruq is firmly embedded in the Islamic Banking system in a great many countries and an undiversified revenue stream for many Islamic banks. 17 http://www.9% of the total Islamic modes of financing) and it is estimated that global tawarruq market is more than $100 billion18. Over-borrowing and over-lending is one root cause of the Asian economic crisis and is the use (and over use) of tawarruq if allowed to continue. Also. The academy’s rulings in prohibiting the use of organized and banking tawarruq contracts stems from the phenomenal growth on the use of tawarruq in liquidity management. or the internal aspects i. of the contract. this will increase the proliferation of debt in the Islamic banking market. p340 17 . Commodity Murabaha (a form of tawarruq) is one of the most commonly used financing contract in Islamic Banking (73. since the end result of tawarruq contracts is the creation of debt. Critical Issues on Islamic Banking and Financial Markets.e.arabianbusiness.deliberation to strike a balance between debt instruments and equity based instruments.17 The arguments to rule organized tawarruq permissible or otherwise is focused on the intention of the mutawwarriq.dawn. The former emphasizes on the form or the external aspects but the later focuses on the substance. The basis used is similar to the arguments made in determining the legality of contracts in general based on Shafi’i and Hanafi schools as opposed to Maliki and Hambali schools. intention. we may have another financial crisis looming on the horizon which will impact the Islamic banking in general19. Critical Observations The recent ruling on Tawarruq is perhaps the most significant Shariah risk event thus far.com.pk/wps/wcm/connect/dawn-contentlibrary/dawn/news/business/11-scholars-raise-questions-over-islamic-finance--il--07 19 Saiful Azhar Rosly (2005).com/557758-islam-allows-organised-tawarruq-assetsales---scholar 18 http://www. 6.

as a parallel move. therefore Islamic banks should look into the purpose of debt creation itself. In the more immediate future. Musharakah. it is unlikely to go out of fashion without a fight. further research is required to determine the anticipated impact to the banking business. Such a move represents a paradigm shift that challenges the very basis of the existing banking structure. Consequently even if it falls into some disrepute. and would require strong political will to institute – and could quite likely occur only in conjunction with an overall philosophical review and revision of the basis and practice of the Islamic commercial industry – and while there appears to be increasing demand for such a revision (particularly in the aftermath of the recent economic crash). for example. In my opinion. 18 . However. and using Mudarabah-.and Wakalah-based inter-bank deposits. other helpful steps to assist liquidity management include improving financial markets’ infrastructure to enhance the tradability of Sukuk. If the purpose of debt creation is to create a venture capital or for the purpose of equity financing. this should be discouraged since Allah says in the Quran that. one of the best ways for Islamic banks to return to a 100% cash reserve ratio. Organized Tawarruq is an immense undertaking and many Islamic banks have put years of effort into developing such systems.” Since Tawarruq is extensively used by most Islamic financial institutions for liquidity management purposes. These will rule out the need for the fractional banking system that is based on liquidity management. it is difficult to predict when this may happen. If the purpose is to create extra cash in itself.Since debt is the end result of an organized and banking tawarruq. an alternative workable solution must be available in case Tawarruq is phased out. and return to the genuine investment-based and profit-loss sharing products. These contracts would lessen the impact of market risks of another financial crisis. then Islamic banks should encourage the use of mudarabah and musharakah contracts instead. “wealth must not circulate only among the rich ones among you.

Why Tawarruq Needs to Go?. whether consciously or unconsciously. there would be a heightened need to provide genuine Shariah-based product solutions that offer neutral liquidity or “cash-in-hand” to the client. This acknowledgement. Issue 35. it seems. some of which include negotiating an initial Salam price and the use of Parallel Salam. unqualified and meaningful appraisal and acknowledgement of the situation. The difficulty arises since the main objectives of the majority of Islamic banks’ formation are to maximize profit and maximize shareholders’ value but not the proliferation of conformance to the Shariah and the betterment of the Islamic ummah for Allah’s sake. will tend to use hillah (strategems) to justify the continued use of organized and banking tawarruq. cannot be readily observed at present in the Islamic finance industry. Any corrective measures taken must necessarily be a subsequent step. Salam is probably the most genuine product that was specifically sanctioned by the Prophet precisely for meeting the liquidity needs of agricultural producers. Islamic Finance News Volume 6. However. p19-20 19 . This apprehension in using Salam persists despite the existence of various riskmitigating tools. It should be noted that Salam can comfortably be utilized outside the agricultural sector as well. This is because most Islamic banks are publically owned. 20 Dr Salman Khan (2009). For such needs. As long as it remains as such. Salam remains grossly underused and is disliked by banks because of the perceived “price risk” associated with this product. it remains that the very first step towards any improvement must begin with a frank.20 However. Islamic banks.If Tawarruq is to be made redundant.

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