Tawarruq Personal Financing using Bursa Suq Al-sila

Presentation by: Nor Hafizah binti Samanal

Content

Meaning of TawarruqModus operandiType of TawarruqOpinions regarding TawarruqIssues on TawarruqChallenge on TawarruqMeaning of Bursa Suq Al-sila’Industry Banking Product

1

Meaning of Tawarruq

The term tawarruq is derived from root word al-wariq

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

2

Modus operandi of Tawarruq

Commodity seller

(muwarriq)

Commodity buyer

Customer(mutawarriq)BANK A

2) Sale for deferred payment RM 110 mil

3) Sale for immediate paymentSale RM 100 milCost RM 110 mil

1) Sale for immediate payment

RM 100 mil

Source 1: Money, Islamic Bank and Real Economy (2010)

3

Modus operandi of Tawarruq

2

CUSTOMER BROKER B

BROKER A

B ANK

1

3

5

4

2

6

MuwarriqMutawarriq

Type of Tawarruq4

Opinions regarding Tawarruq

Hanbali and many scholar - Permitted. Ibnu Taimiah and Ibnu al-Qayyim – Prohibited. Imam Ahmad bin Hanbal – Makruh.

5

Issues pertaining to Commodity Issues pertaining to possession and delivery Issues pertaining to Bay al-Inah Issues pertaining to Agency

Issues on Tawarruq6

The wide usage of tawarruq increasing of debt and embodies many risks and harmful effect.

Debt as an individual transaction is not illegal from Shariah point of view. But, from a macro perspective it has been an accepted.

Priority is given to public interest (Maslahah ammah) over individual interest (maslahah khassah)

Opportunities or challenge7

4/1 The requirements of the contract for purchasing the commodity on a deferred basis should be completely fulfilled4/2 The commodity sold should be well identified.4/3 If the commodity is not made available at the time signing contract, the client should be given a full description when the commodity is not available.

The AAOIFI’s Shariah Parameters

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Bursa Suq Al-sila’

An Islamic commodity trading platform for the Islamic financial and capital market.

Designed to serve as a multi-commodity and multi-currency platform, initially with trading of CPO (crude palm oil) to serve the Malaysian market.

Shariah-compliant on end-to-end basis & designed to be in line with International Shariah standards.

Trading platform is fully electronic and web-based; access is via internet with multiple security features.

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Specification of BSAS9

Specification Parameters

Contract code CM-CPO

Settlement Delivery of CPO (with provision for cash settlement)

Contract grade & delivery point

Free Fatty Acid (FFA) of palm oil delivered into the tank ≤ 4% and the tank ≤ 5%.

Trading Session Mon-Thurs : 10.30 a.m – 6 p.mFriday 1st : 10.30 a.m – 12.30 p.m2nd : 2.30 p.m – 6 p.m

Industry Banking Product

Personal financing Asset financing Cash line facility contract financing Home financing Project financing facilities

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Q & A11