Islamic Personal Financing Through Bursa Suq As-Sila

Prepared by Shariah Centre of Excellence

In the realm of Islamic finance, tawarruq has emerged as a groundbreaking mechanism that allows individuals to access personal financing while adhering to Shariah principles. tawarruq, also known as commodity murabahah (cost plus profit sale), is a financial concept rooted in Islamic jurisprudence that offers an alternative to conventional lending.

Understanding Tawarruq

In the context of Islam, the concept of riba, which refers to the charging of interest or usury, is strictly prohibited. Tawarruq, the alternative arrangement to avoid and prevent Muslim from interest, is permissible according to some scholars. This is based on Surah Al-Baqarah from verse 275, Allah SWT said:

“But Allah has permitted trade and has forbidden interest.” (Al-Baqarah:275)

Tawarruq is derived from the Arabic word “wariq” which linguistically means Dirham from silver. Thus, tawarruq means seeking wariq i.e. silver dirham, which money or profitable cash. In the context of Islamic finance, a tawarruq consists of two sale and purchase contracts. The first involves the sale of an asset by a seller to a purchaser on a deferred basis. Subsequently, the purchaser of the first sale will sell the same asset to a third party on a cash and spot basis. Tawarruq is widely used to create Islamic financial products such as personal financing, home financing, and credit card facilities.

The transactional flow of an Islamic Personal Financing executed through BSAS are as follows:
The Customer, Ahmad, requires financing of RM 100,000 from the Bank. Upon this request, the Bank executes the tawarruq arrangement.
 

1. Bank buys the commodity (RM 100,000) from a commodity supplier on spot as principal (Bank now owns commodity);
2. Customer appoints the Bank as an agent to purchase the commodity and also appoints the Bank as an agent to sell the commodity.
3. Customer appoints the Bank as an agent to purchase the commodity and also appoints the Bank as an agent to sell the commodity.
   1. to take physical delivery/possession at his own expense; or
   2. sell the commodity to a third party for cash;
   3. As the owner of the commodity, Customer may opt to:
4. Bank disburses the sale proceeds (RM100,000) to Customer.

Islamic personal financing based on the tawarruq concept offer a compelling alternative to conventional financing for Muslims seeking ethical and Shariah-compliant financial solutions. Tawarruq transactions are rooted in transparency, fairness, and compliance with Islamic principles, making them a viable choice for individuals who wish to access funds while remaining true to their faith. As the field of Islamic finance continues to evolve, tawarruq stands as a testament to the innovation that can arise within the boundaries of faith-based financial practices.