Tawarruq and Commodity Murabahah
Muhammad Abubakar Siddique,
Lecturer, Int’l Institute of Islamic Economics (IIIE),
Int’l Islamic University, Islamabad.
Website: http://islamicfina.com/
Oct. 28, 2021
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Video Lecture of This Reading
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Note: Before understanding you must have the concept of Buy-Back (Bay’ Inah) – Click here
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Monetization
Monetization refers to the process of purchasing a commodity for a deferred price determined through Musawamah (Bargaining) or Murabaha (Mark-up Sale), and selling it to a third party for a spot price so as to obtain cash.
Tawarruq is a transaction whereby a person who is in need of money, buys a commodity on credit from certain person, and then sells it in market on cash at a price less than the one at which he purchased from its owner. It is called Tawarruq because the purpose of this transaction is to obtain wariq (silver) i.e. money or finance by a needy person. For example, A is in need of Rs. 20,000. He approaches B with the request to sell him certain commodity on credit. B sells him a computer worth Rs. 20,000 for Rs. 30,000 on credit to meet his immediate need of money. A sells it in market on cash for Rs. 20,000 and gets money. He is indebted to B for Rs. 30,000.
The classical Muslim jurists have divergent views about its legal status. A considerable number of Muslim jurists hold it invalid. In their opinion, the motivating cause of the transaction is to get loan against certain increase. It is a subterfuge and a legal device to obtain money against a certain increase. Besides, it is an exchange of money for money with surplus from one side.
Maliki Viewpoint
Maliki School holds Tawarruq invalid. The authoritative Maliki text “Mukhtasar Khalil explains Maliki Position on Tawarruq. The author writes:
“If a person asks the other: Lend me eighty and I will return to you one hundred”. The other person says: It is not lawful but I will sell you a commodity worth eighty for one hundred”.
Hanafi Viewpoint
Hanafi School has two divergent positions on Tawarruq.
1. Al-Zayla’I (d.743) identifies tawarruq as bay al-Inah and disallows it. He says:
The form in which Bay’ al-Inah is practiced is that a needy person approaches a merchant and requests him to lend him some money. The merchant wants to earn from the transaction, but at the same time, he does not want to be indulged in Riba. So, he sells him a cloth worth ten for fifteen on credit, so that person could sell it for ten (which is the real value of cloth), on cash and meet his need. This is unlawful and reprehensible”. (Tabyin al-Haqa’iq vol. 4, p.89)
2. Ibn Humam (d.861), another Hanafi jurist, allowed it though considered it less preferable. (Ibn Humam, Sharh Fath al-Qadir, vol. 7, p. 212 & 148. See also Radd al-Muhtar. Vol.5, p.325-326)
Shafi’i Viewpoint
Shafi’i jurists emphasis that external form of contract should be according to the requirement of Islamic law. They are not concerned with the underlying intention (Rawadah al-Talibin, vol. 3, p. 416). From this, it can be concluded that they acknowledge the validity of Tawarruq.
Hanbali Viewpoint
Hanbali scholars hold Tawarruq valid. Al-Mardawi, a renowned Hanbali jurist writes:
“If a person needs cash, and for that purpose he buys a commodity whose value is hundred for hundred and fifty, it is lawful. This is the ruling of Imam Ahmad” (Al-Mardawi, Kitab al-Insaf, vol. 4, p.337).
Hanbali jusirts generally regard tawarruq permissible. Imam Ibn Taymiyyah and Imam Ibn al-Qayyim, two prominent Hanbali scholars, however, do not agree with the acknowledged viewpoint of their school. They equate Tawarruq with Bay’ al-Inah (buy-back agreement) (I’lam al-Muwaqqi’in, vol. 5, p. 86; al-Fatawa al-Kubra, vol. 19, p. 302)
Those who approve of Tawarruq rely on the texts that permit sale such as the verse: Allah (SWT) has permitted Bai´ and forbidden Riba (al-Baqarah 2: 275). They, however, lay down certain conditions for its validity. These are:
(i) There is a real need for transaction. The person undertaking Tawarruq needs money and he is unable to get loan from any source. However, if he can get loan, then he is not allowed to enter Tawarruq.
(ii) The contract in its form should not be similar to a Riba contract. This occurs where the seller expressly mentions that he is selling a commodity worth one thousand (which is the real price) for twelve hundred, because this amounts to exchange of money for money with excess. It is, however, lawful if he apprises the prospective debtor of its real price and his profit margin.
(iii) The debtor (buyer of commodity) should not sell it before taking its possession.
(iv) The commodity should not be sold to the same creditor (seller in this case) at a less price.
Shari’ah Advisory Council of Bank Negara Malaysia
Resolution: Deposit Product Based on Tawarruq
The SAC, in its 51st meeting dated 28 July 2005, has resolved that deposit product based on Tawarruq is permissible.
Resolution: Financing Product Based on Tawarruq
The SAC, in its 51st meeting dated 28 July 2005, has resolved that financing product based on the concept of Tawarruq is permissible.
(Shari’ah Resolutions in Islamic Finance: Item 60 -61)
The Fiqh Academy of Muslim World League in its 15th session had also allowed Tawarruq with certain conditions. It, however, reviewed its fatwa in its 17th session and declared current Tawarruq practices by the Islamic banks invalid.
OIC FIqh Academy Resolution 179 (19/5)
Tawarruq: its meaning and types (classical applications and organized Tawarruq)
The International Council of Fiqh Academy, which is an initiative of the Organization of Islamic Conferences (OIC), in its 19th session which was held in Sharjah, United Arab Emirates, from 1 – 5 of Jamadil Ula 1430 AH, corresponding to 26 – 30 April 2009, decided on the following:
Having reviewed the research papers that were presented to the Council regarding the topic of Tawarruq, its meaning and its type (classical applications and organized Tawarruq), a resolution was passed. Furthermore, after listening to the discussions that revolved about the applications of Tawarruq, the resolutions were presented at the International Council of Fiqh Academy, under auspices of the Muslim World League in Makkah.
The following were the resolutions:
First: Types of Tawarruq and its juristic rulings:
Technically, according to the Fiqh jurists, Tawarruq can be defined as: a person (mustawriq) who buys merchandise at a deferred price, in order to sell it in cash at a lower price. Usually, he sells the merchandise to a third party, with the aim to obtain cash. This is the classical Tawarruq, which is permissible, provided that it complies with the Shari’ah requirements on sale (bay’).
The contemporary definition on Organized Tawarruq is: when a person (mustawriq) buys merchandise from a local or international market on deferred price basis. The financier arranges the sale agreement either himself or through his agent. Simultaneously, the mustawriq and the financier execute the transactions, usually at a lower spot price.
Reverse Tawarruq: it is similar to Organized Tawarruq, but in this case, the (mustawriq) is the financial institution, and it acts as a client.
Second: It is not permissible to execute both Tawarruq (Organized and Reversed) because a simultaneous transaction occurs between the financier and the mustawriq, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This is considered a deception, i.e. in order to get the additional quick cash from the contract. Hence, the transaction is considered as containing the element of Riba.
The recommendation is as follows:
To ensure that Islamic banking and financial institutions adopt investment and financing techniques that are Shari’ah-compliant in all its activities, they should avoid all dubious and prohibited financial techniques, in order to conform to Shari’ah rules and so that the techniques will ensure the actualization of the Shari’ah objectives (maqasid Shari’ah). Furthermore, it will also ensure that the progress and actualization of the socioeconomic objectives of the Muslim world. If the current situation is not rectified, the Muslim world would continue to face serious challenges and economic imbalances that will never end.
To encourage the financial institutions to provide Qard Hasan (benevolent loans) to needy customers in order to discourage them from relying on Tawarruq instead of Qard Hasan. Again these institutions are encouraged to set up special Qard Hasan Fund.
AAOIFI
According to AAOIFI Shariah Stranded no. 30, article 4/5 stated that “commodity (object of Tawarruq) must be sold to a party other than the one from whom it was purchased on a deferred payment basis (a third party) so as to avoid Inah”
This standard makes it very clear that Tawarruq cannot be fictitiously transacted with the cosmetic involvement of a third party. It should be ensured that the goods being traded are genuinely moved from seller to buyer. If there is any trick (hilah) involved, then the transaction would be deemed as a hilah to avoid the prohibited Riba, which resemble the character of Inah.
In commodity Murabaha the transacting parties operate a netting facility between their different storage felicities and in reality the commodity rarely gets physical transferred from seller to the buyer as it should under the requirement of the Shari’ah. For example in the local goods like a car, the bank buys the car from the exhibition centre. The bank then sells it to the customer on credit. Then, the customer appoints the exhibition centre to sell the car. The car will then be sold by the exhibition centre to the bank. Then, the bank will resell it to another customer. This is how papers of the cars rotate various times among the bank, the customer and the exhibition centre, while the car remains in its place, without moving a single inch. To confirm this transaction is the exchange of money for money. The goods only entered it by deception.
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نیچے دیے گئے لنک پر کلک کریں اور سبسکرائب کریں ۔
اسلامی معلومات ، روایتی معاشیات ، اسلامی معاشیات اور اسلامی بینکاری سے متعلق یو ٹیوب چینل
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