Classical Tawarruq: A Potential Alternative to Baiʿ al-ʿĪnah in the Malaysian Banking and Finance Industries

Abstract

International Islamic religious authorities have commented negatively on the application of baiʿ al-ʿīnah (same-item sale-repurchase) in the Malaysian banking industry. These authorities include the Islamic Fiqh Academy of the Organisation of Islamic Cooperation (OIC) and Accounting and the Auditing Organisation for Islamic Financial Institutions (AAOIFI). They conclude that the application represents a prohibited ruse to legitimise usury through a sale transaction. This article examines the possible use of classical tawarruq as an alternative to baiʿ al-ʿīnah in the Malaysian banking industry, especially for retail financing. Several modes of classical tawarruq are considered. This research supports the application of classical tawarruq as an effective, viable and marketable Islamic financing arrangement.

The difference of Shariah risk potential and Shariah risk in personal financing products based on tawarruq munazzam contracts practised in Malaysia

“…From the previous studies, some researchers have stated that tawarruq munazzam contract owned several risk potentials and risks of Sharīʿah-non-compliance. The researchers include Yusoff et al (2019), Istami (2018), Fa-Yusuf and Ndiaye (2018), Kahf and Habbani (2019) and Ali (2018). Meanwhile, amongst the minority who allowed the tawarruq munazzam contract are Al-Muni' (2004), al-Qurri (2004), al-Sharif (2002 and Isa (2003).…”

“…The modification purpose of the tawarruq contract from its original concept is good to sustain Islamic banking operations in the modern Islamic financial system, as well as to ensure controversy remains inevitable when the product is widely criticised from the point of Sharīʿah-compliance by local and international Islamic financial scholars (Yusoff et al, 2019;Mohamad and Ab Rahman, 2014). Amongst these critics are independent research bodies that are recognised by the international Muslim community, which are also not bound by specific interests such as Majma' Fiqh al-Islami (IIFA, 2009) and AAOIFI (2015).…”