Organized tawarruq is permissible: Sheikh Nizam Yaquby

Organized tawarruq is permissible: Sheikh Nizam Yaquby

The use of the organised tawarruq financing structure does not contradict Islamic law, prominent scholar Sheikh Nizam Yaquby said, disagreeing with a Saudi-based ruling to the contrary.

Tawarruq is a key financing structure of the $1 trillion Islamic finance industry.

But whether or not the way it is organised in modern banks contradicts sharia, or Islamic law, has triggered fiery debates between scholars as the industry is struggling with a decline in business during the global financial crisis.

The International Council of Fiqh Academy, a leading industry body based in Saudi Arabia, in April declared organised tawarruq "a deception" that carries elements of interest-based lending, prohibited under Islamic law.

"If proper procedures are implemented and checks and balances are put, then tawarruq is a useful tool and can be used," Yaquby told Reuters in an interview.

Widely used as a financing and liquidity management tool, tawarruq is an asset sale to a purchaser with deferred payment terms. The purchaser then sells the asset, such as a commodity, to a third party to get cash.

Under organised tawarruq, the transactions are organised through banks which are appointed as agents to sell off the asset, in what has been criticised as a mere paper trail circumventing Islamic law and blurring lines between the purchaser and the third party.

Yaquby said centuries-old Islamic finance tools needed to be reconciled with the procedures of the modern banking system.

"All these Islamic finance tools have certain amounts of organization and we must know that (given) modern contracts within the existing frameworks, legal structures, it is very difficult to do something which is not organized," he said.


Yaquby is globally recognized as one of the top Islamic scholars, and in particular wields influence in the Gulf Arab region, one of the industry’s most important regional centres.

He is listed by consultants Funds@Work as sitting on 46 sharia scholar boards, including at Islamic operations of BNP Paribas, HSBC and Standard Chartered.

Yaquby also said there were hardly any alternatives to tawarruq as a tool to satisfy legitimate financing needs, to which he gave more weight than how it is implemented.

He said the use of a bank in selling assets would help minimise the losses occurring from the additional transaction, which would be higher if the purchaser sold assets himself.

"How can sharia allow something which is burdensome on a person … and not allow something which is organised and well done, and this man who is in dire need for cash will not suffer a lot," he said.

He voiced support for the standards of Bahrain-based AAOIFI — the Accounting and Auditing Organization for Islamic Financial Institutions — which he said provided the necessary checks to prevent the abuse of tawarruq.


3 responses to “Organized tawarruq is permissible: Sheikh Nizam Yaquby

  1. Pingback: Organized tawarruq is permissible: Sheikh Nizam Yaquby « The … | Personal Finance Reference

  2. وإني بدوري : أنصحُ أصحاب البنوك الرِّبوية , والمؤسسين للشركات المساهمة التي تتعامل بالرِّبا , والعاملين معهم , بأن يتوبوا إلى الله سبحانه من هذه الجريمة الشنيعة التي لَعَنَ الله سبحانه وتعالى مرتكبها , وتأذَّن بحربه , وألا يغترُّوا بإمهال الله لهم , فإنه سبحانه يُملي للظالم ثمَّ يأخذه أخذ عزيز مقتدر .
    وأنصحُ إخواني العلماء وطلاب العلم الذين اتخذت منهم البنوك الرِّبوية حجَّة على استحلال معاملاتهم الرِّبوية , وكذا شركات التأمين ومؤسساته التي تتعامل بما حرَّم الله من أكل أموال الناس بالباطل … أنصحُ أولئك الإخوة : أن يتخلَّوا عن تلك اللجان وعن فتاواهم التي استحلَّ بها المُرابون وأكلة الأموال بالباطل ما حرَّم الله سبحانه بأدنى الحيل . عبدالرحمن بن حماد العمر

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