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.