WHY TAWARRUQ IS ALLOWED IN ISLAM?

Tawarruq is a mutual trade method that is generally accepted as per verses in the Al Quran,

where Allah allows trade and prohibits Riba. It is based on mutual consent between the customer

and Islamic banks, with no harmful effect in declaring lump sum or percentage profit margins.

Tawarruq is not based on Riba', as it is a trade by mutual consent, with no hidden payment

charged by the seller. The price in the beginning of Murabahah contract is fixed until the end of

installment payment, making the price in Tawarruq permissible.

The Prophet Muhammad forbade the exchange of low-quality dates for superior ones, indicating

the legal trading method to avoid usury. The legality of Tawarruq is based on the general

meaning of the evidence and the ability to facilitate relief and meet current needs. The

transaction is not prohibited if the intent and differing goals using a medium are acceptable and

can be carried out.

Fatwas from Islamic Countries on Tawarruq include the Islamic Fiqh Academy, Islamic Judicial

Assembly, and Accounting and Auditing Organization for Islamic Finance (AAOIFI). The

Permanent Committee for Scientific Research also mentions the issue of Tawarruq, stating that if

a debt becomes payable, it will be paid to its owner who bought it on credit.

Islamic banking in Malaysia has become a substantial and fastest growing industry in the last

four decades, following the Islamic transactions rules and principles of Shariah. Transactions

include deposit, financing, and liquidity, which are mostly used by Islamic banks according to

the customer's needs (Zukri, 2009).

In Tawarruq, there are four parties involved: the customer, the bank, and the two brokers. The

process of Tawarruq financing involves two transactions: Murabahah contract and Wakalah
contract. Some forms of Tawarruq have drawn criticism from several clerics who say the

structures fall foul of Islamic principles. Some Malaysian Bankers believe Tawarruqdeals can be

a sham with no true sale taking place and no real transfer of risk to the buyer of the goods

(Zuhaily, 2007).

Bursa Malaysia Suq Al-Sila’ (BSAS) was introduced in 2009, a purposefully designed exchange-

traded platform to facilitate Tawarruq transactions, particularly for Islamic banks The resolution

permits Tawarruq to be implemented in Islamic banks but subject to certain requirements and

conditions.

In Shariah, sale means exchanging a thing of value with another thing of value by mutual

consent. The conditions of valid sale in Shariah are strictly applied before the sale or transaction

has taken place. The parties involved must be qualified and mutually consent to enter into

contract. The subject matter or sold good must exist at the time of sale and must be in the

ownership of the seller at that time. The sale of goods means the definite transfer of ownership of

goods to the purchaser against the payment of a price that can be on the spot, delayed (sale of

credit), or in advance.

25
Ahmad Tajudin,Azrul Azwar. 13 Disember 2010. “Overview of Islamic Finance”. Islamic

Finance Course: Structure and Instrument. (Article) http://www.bankislam.com.my

26
Hassan, Zulkifli. 2009. “Tawarruq: A Methodological Issue in Shariah Compliant Finance”.

http://zulkiflihasan.wordpress.com