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MAHYUDDIN KHALID

emkay@salam.uitm.edu.my

CONTENT
DEFINITION

EVIDENCES

PILLARS

TYPES

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

CONDITIONS

APPLICATION

DEFINITION
DEFINITION

Literal:
Minted silver; seeking silver money

EVIDENCES

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

PILLARS

TYPES

CONDITIONS

APPLICATION

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

EVIDENCES
DEFINITION

EVIDENCES

Qiyas: Permissible based on analogy, the contract is similar to other sale and purchase contracts i.e. the transfer of ownership is taken place

PILLARS

TYPES

CONDITIONS

APPLICATION

PILLARS OF BAY AL-TAWARRUQ


DEFINITION

EVIDENCES

PILLARS

Original seller Final buyer Mutawarriq Wariq Commodity

TYPES

CONDITIONS

APPLICATION

FLOWS OF BAY AL-TAWARRUQ


DEFINITION

EVIDENCES

CUSTOMER (Mutawarriq)
1 3 5 6

PILLARS

TYPES

BANK
2 4

CONDITIONS

APPLICATION

Original seller

Final buyer

TYPES OF AL-TAWARRUQ
DEFINITION

TAWARRUQ AL-FARDH
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.

EVIDENCES

PILLARS

TAWARRUQ AL-MUNAZZAM
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.

TYPES

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

TYPES OF TAWARRUQ
TAWARRUQ
DEFINITION

TAWARRUQ AL-MUNAZZAM
The original seller act as an intermediary by selling the commodity for cash on behalf if the mutawarriq

AL-FARDI
Original seller does not play any role in the resale of the commodity and has no relation with the final buyer

EVIDENCES

PILLARS
The cash will be taken by the mutawarriq directly from the final buyer without the seller being involved The mutawarriq receives the cash from the original seller, to whom he owes the delayed price

TYPES

CONDITIONS The original seller has not information and relation with the final buyer The original seller might agree beforehand with the final buyer that he will purchase the commodity

APPLICATION

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

Rejected by majority of jurist. But accepted to be practice by current fiqh scholars and IFI Shariah Advisory Council

CONDITIONS OF BAY AL-TAWARRUQ


DEFINITION

Ownership of the commodities.


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 transferable commodity (manqulat). Examples include metals, cement, rice and cars.

TYPES

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 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.

APPLICATION

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 deferred sales in general and one of the conditions of the both contracts is that it must explain in detail the manner of payment.

EVIDENCES

PILLARS

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-nasia).

TYPES

CONDITIONS

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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APPLICATION
DEFINITION

EVIDENCES

PILLARS

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)

TYPES

CONDITIONS

APPLICATION

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END OF CHAPTER
DEFINITION

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

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