Tawarruq is a purchase of commodity that is in the ownership and possession of the seller against a deferred price, and its subsequent sale by the purchaser to a 3rd party (not seller) on cash for the purpose of obtaining cash.
3 forms of tawarruq :
a) A person in need of cash purchases a commodity on credit and sells it to another for cash, without any party being aware of his need or intention
b) A person in need (mutawarriq) requests for a loan from a trader, who excuses himself from lending to him, but willing to sell a commodity to him on credit for its cash price. The mutawarriq then sells it at any possible price, be it more than the purchase price or less
(a) and (b) – permissible
c) similar to (b) but trader sells the commodity to mutawarriq for a price higher than its market value, against the delay in payment
Here, jurists differ in opinions.
Legality of tawarruq
Hanbali – tawarruq is permissible
Shafi’i – tawarruq is permissible
Hanafi – permitted tawarruq and distinguished it from inah
Maliki – tawarruq is help offensive if sale of an item for a price higher than its market value
Decision by Islamic Fiqh Academy
15th session – tawarruq is permissible
17th session – tawarruq is not permissible as is currently practiced by some Islamic banks
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