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1. What is Tawarruq?

A form of reverse Murabaha which is tolerated as it involves many sales contracts and at least three independent parties, frequently used to deliver money to a person wishing to avoid borrowing at interest. Considered objectionable by most Muslim scholars. 

2. Tawarruq process:

  • First, the customer signs a Tawarruq contract with the Islamic bank in order to buy a commodity.
  • After that, the Islamic bank buys the commodity from a seller and sells it to its customer at a mark-up price.
  • Then, the customer pays the Islamic bank in installments and once s/he has the commodity, s/he sells it to another party for cash. 

3. Tawarruq conditions: 

  • The customer must be in a real need of money.
  • The customer has no other means of getting money (no loan options…)
  • The Tawarruq contract should be Sharia-compliant: no Riba involved and no sale of a commodity without owning it.
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