MAHYUDDIN KHALID emkay@salam.uitm.edu.my

BAY’ AL-TAWARRUQ

التورق بيع

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DEFINITION EVIDENCES PILLARS OF BAY’ AL-TAWARRUQ TYPES OF BAY’ AL-TAWARRUQ CONDITIONS OF BAY’ AL-TAWARRUQ MODERN APPLICATION

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Literal: Minted silver; seeking silver money

Technical: Buying a commodity with deferred payment and

selling it to a person other than the buyer for a lower price with immediate payment.

Purchasing a commodity on credit and selling it to a person other than the initial seller for a lower price on cash

Tawarruq is a term commonly used by Hanbali school of law

Other school mention the form of tawarruq under the rubric or bay’ al-ajal and bay’ al-’inah

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Qiyas: Permissible based on analogy, the contract is

similar to other sale and purchase contracts i.e. the transfer of ownership is taken place

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Original seller Final buyer Mutawarriq Wariq Commodity

PILLARS OF BAY’ AL-TAWARRUQ

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FLOWS OF BAY’ AL-TAWARRUQ

Final buyerOriginal seller

BANK

CUSTOMER(Mutawarriq)

1 53 6

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• Define by OIC Fiqh Academy as the purchase of commodity possessed and owned by the seller for a delayed payment, whereupon the buyer will resell the commodity for cash to other than the original seller in order to acquire cash.

TAWARRUQ AL-FARDH

• The process handle by the saller by which cash is acquired for the mutawarriq (seeker of cash). He does so by selling a commodity to him for a delayed payment, he then sells it on behalf for cash by taking the payment from the buyer and handling it over to themutawarriq.

TAWARRUQ AL-MUNAZZAM

• Process where the IFI formally organises the sale of a commodity (other than gold/silver) between an international commodity market and the mutawarriq, for a delayed payment on a binding condition that may be stipulated in the contract or to the custom and norms guiding such a commodity

TAWARRUQ AL-MASRAFI

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TAWARRUQ AL-FARDI

Original seller does not play any role in the resale of the commodity and has

no relation with the final buyer

The cash will be taken by the mutawarriq directly from the final

buyer without the seller being involved

The original seller has not information and relation with the final buyer

Accepted by majority of jurists (Hanafi, Maliki and Hanbali) and Majma’ al Fiqh

al Islami

TAWARRUQ AL-MUNAZZAM

The original seller act as an intermediary by selling the commodity

for cash on behalf if the mutawarriq

The mutawarriq receives the cash from the original seller, to whom he owes

the delayed price

The original seller might agree beforehand with the final buyer that

he will purchase the commodity

Rejected by majority of jurist. But accepted to be practice by current fiqh

scholars and IFI Shariah Advisory Council

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Ownership of the commodities. • The seller must own the commodity before selling it to the buyer.

Commodity is specified. • The seller has to explain the details of the commodity to the buyer.

Possession of commodities. • The commodities which are normally used in the contract of organized

tawarruq can be transferred from place to place and this kind of commodity is called a transferable commodity (manqulat). Examples include metals, cement, rice and cars.

Avoiding ‘inah sales. • As has been mentioned, the majority of jurists consider that ‘inah sales

are prohibited according to Islamic law. Therefore, financial institutions avoid buying the commodities again from the client because they have already sold them to the client by installment payments for more than what they normally pay to acquire the commodities. Consequently, if they were to buy the commodities from the clients for less than what the client had paid, the contract would be an ‘inah sale.

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Details of the time of payments. • The contract between the financial institution as the seller

and the client as the buyer is based on the contract of installment sales or deferred sales in general and one of the conditions of the both contracts is that it must explain in detail the manner of payment.

Avoiding usury• The contracting parties have to be careful not to deal with

commodities, which it is not permissible to exchange for deferment, otherwise, they would be involved in the usury by way of deferment (riba al-nasi’a).

Delivery is immediate. • As indicated previously, the contract of organized tawarruq

is based on deferred or installment payment so if the delivery is deferred, the contract would then be a sale of debt-for-debt and this kind of sale is prohibited in Islamic law.

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Tawarruq or commodity murabahah as one of the popularly used principles to structure various Islamic financial instruments. Below list of some common Islamic financial instruments that are structured based on tawarruq: Commodity murabahah deposit facility and

placement Personal financing Asset financing Cash line facility BNM Islamic Accepted Bills (IAB) Islamic Private Debt Securities (IPDS)

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