2. CONTENT
DEFINITION
DEFINITION
EVIDENCES
EVIDENCES PILLARS OF BAY’ AL-TAWARRUQ
TYPES OF BAY’ AL-TAWARRUQ
PILLARS
CONDITIONS OF BAY’ AL-TAWARRUQ
TYPES
MODERN APPLICATION
CONDITIONS
APPLICATION
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3. DEFINITION
Literal:
DEFINITION
Minted silver; seeking silver money
EVIDENCES Technical:
Buying a commodity with deferred payment and
PILLARS selling it to a person other than the buyer for a lower
price with immediate payment.
TYPES Purchasing a commodity on credit and selling it to a
person other than the initial seller for a lower price on
CONDITIONS
cash
Tawarruq is a term commonly used by Hanbali
APPLICATION 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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4. EVIDENCES
Qiyas:
DEFINITION
Permissible based on analogy, the contract is
EVIDENCES
similar to other sale and purchase contracts i.e. the
transfer of ownership is taken place
PILLARS
TYPES
CONDITIONS
APPLICATION
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5. PILLARS OF BAY’ AL-TAWARRUQ
Original seller
DEFINITION
Final buyer
EVIDENCES Mutawarriq
Wariq
PILLARS
Commodity
TYPES
CONDITIONS
APPLICATION
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6. FLOWS OF BAY’ AL-TAWARRUQ
DEFINITION
CUSTOMER
(Mutawarriq)
EVIDENCES
1 3 5 6
PILLARS
TYPES BANK
CONDITIONS
2 4
APPLICATION
Original seller Final buyer
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7. TYPES OF AL-TAWARRUQ
TAWARRUQ AL-FARDH
DEFINITION
• Define by OIC Fiqh Academy as the purchase of commodity possessed
and owned by the seller for a delayed payment, whereupon the buyer
EVIDENCES will resell the commodity for cash to other than the original seller in
order to acquire cash.
PILLARS TAWARRUQ AL-MUNAZZAM
• The process handle by the saller by which cash is acquired for the
TYPES 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.
CONDITIONS
TAWARRUQ AL-MASRAFI
APPLICATION • 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
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8. TYPES OF TAWARRUQ
TAWARRUQ TAWARRUQ
DEFINITION AL-FARDI AL-MUNAZZAM
EVIDENCES Original seller does not play any role in the The original seller act as an intermediary by
resale of the commodity and has no relation selling the commodity for cash on behalf if
with the final buyer the mutawarriq
PILLARS
The cash will be taken by the mutawarriq The mutawarriq receives the cash from the
TYPES directly from the final buyer without the original seller, to whom he owes the delayed
seller being involved price
CONDITIONS
The original seller might agree beforehand
The original seller has not information and with the final buyer that he will purchase the
APPLICATION relation with the final buyer commodity
Accepted by majority of jurists (Hanafi, Rejected by majority of jurist. But accepted
Maliki and Hanbali) and Majma’ al Fiqh al to be practice by current fiqh scholars and
Islami IFI Shariah Advisory Council
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9. CONDITIONS OF BAY’ AL-TAWARRUQ
Ownership of the commodities.
DEFINITION
• The seller must own the commodity before selling it to the buyer.
EVIDENCES
Commodity is specified.
• The seller has to explain the details of the commodity to the buyer.
PILLARS 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
TYPES
transferable commodity (manqulat). Examples include metals, cement, rice and
cars.
CONDITIONS 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
APPLICATION
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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10. CONDITIONS OF BAY’ AL-TAWARRUQ
DEFINITION
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
EVIDENCES
deferred sales in general and one of the conditions of the both
contracts is that it must explain in detail the manner of payment.
PILLARS
Avoiding usury
TYPES
• 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
CONDITIONS deferment (riba al-nasi’a).
Delivery is immediate.
APPLICATION
• 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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11. APPLICATION
Tawarruq or commodity murabahah as one of the
DEFINITION
popularly used principles to structure various
Islamic financial instruments. Below list of some
EVIDENCES
common Islamic financial instruments that are
PILLARS
structured based on tawarruq:
Commodity murabahah deposit facility and placement
TYPES Personal financing
Asset financing
CONDITIONS Cash line facility
BNM Islamic Accepted Bills (IAB)
APPLICATION
Islamic Private Debt Securities (IPDS)
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12. END OF CHAPTER
DEFINITION
EVIDENCES
PILLARS
TYPES
CONDITIONS
APPLICATION
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