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Tawarruq: A Shariah Perspective


Tawarruq is a financial instrument for fulfilling liquidity for personal, commercial, and corporate needs. It involves two sales of the same commodity. The commodity is first sold to the beneficiary of Tawarruq on a deferred basis. The beneficiary then sells the commodity for an immediate cash payment. This cash payment provides the funds needed by the beneficiary. The beneficiary will later make the deferred payment to the funds provider.

Banking Tawarruq is the underlying operational mechanism used by MBSB Bank, and other Islamic banks, in financing and deposit packages. Banking Tawarruq can be divided into two types: ordinary Tawarruq and inverse Tawarruq. The key difference between these two types lies in identifying the party who supplies the funds. In ordinary Tawarruq, MBSB Bank supplies the commodity, while the customer is Beneficiary. Accordingly, ordinary Tawarruq is the operational mechanism of financing packages. On the other hand, in inverse Tawarruq, funds are provided by customers. Customers enter such contracts to augment their funds. Accordingly, inverse Tawarruq is the operational mechanism of deposit accounts.


 

How does Banking Tawarruq work?
 

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Banking Tawarruq at a Glance

Tawarruq Definition Integrals Conditions Supplement Types Profit Products
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Definition:
A tawarruq consists of two sale contracts. The first involves the sale of an asset by a seller to a buyer on a deferred basis. Subsequently, the buyer of the first sale will sell the same asset to a third party for a spot price. Sales can be based on Murabahah or Musawamah.
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Integrals:
  1. Customer: Individual or corporate.
  2. Islamic Fianancial Institute.
  3. Aqad: Offer and acceptance.
  4. Asset: Visually inspected or described.
  5. Price: Identified by type and amount.
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Conditions:
(According to BNM)
  1. Separate and independent sale contracts.
  2. Asset cannot be sold back to original seller.
  3. Buyer to take possession of Asset before selling it to a third party.
  4. Asset cannot be:
    1. Gold, silver, or active currency;
    2. Debt; or
    3. Under construction.
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Supplementary contracts:
  1. Wakalah.
  2. Assurance through:
    1. Guarantee;
    2. Takaful;
    3. Collateral; or
    4. Security deposit.
  3. Hiwalah.
  4. Set-off of debts.
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Types:
  1. Ordinary Tawarruq.
  2. Reverse Tawarruq.
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Profit:
  • Profit is the difference between the selling price (spot price from the Final Buyer) and purchase price (deferred payment to Supplier)
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Products:
  1. Deposit accounts.
  2. Financing packages.
  3. Corporate financing packages.


 

Tawarruq Products at MBSB Bank

Deposit Accounts

Consumer Finance

Corporate Finance

Purpose

Provide cash growing instruments for individuals and corporates in a Shariah compliant environment.

Provide funds needed by individuals for their personal and home-purchase needs.

Provide funds for corporates for acquiring fixed assets, financing an investment, financing the business working capital, or bridging the gap in the business' liquidity needs.

Types

• Current Account-i
• Foreign Currency Currrent Account-i
• Savings Account-i
• Term Deposit-i

• Personal Financing-i
• Property Financing-i

• Term Financing-i
• Revolving Credit-i
• Cashline-i

Shariah Mechanism

Reverse Tawarruq

Tawarruq

Tawarruq

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