Tawarruq is a unique Islamic finance structure that is sharia compliant and increasingly used in Australia and around the world. It provides a way to obtain cash without involving interest, which is prohibited in Islamic finance.

What is Tawarruq?

Tawarruq involves purchasing a commodity for a deferred price and then selling it to a third party for cash. This process allows individuals to obtain liquid cash while adhering to sharia compliant principles. The key is that the commodity must be real and sharia compliant, and the transactions must be independent of each other.

How Does Tawarruq Work?

1. Customer Request: The customer approaches the Islamic bank with a request for cash financing.
2. Bank Purchase: The bank buys a commodity from a seller.
3. Sale to Customer: The bank sells the commodity to the customer at a higher price on a deferred payment basis.
4. Customer Sale: The customer sells the commodity to a third party for cash, fulfilling their need for liquid funds.
5. Deferred Payment: The customer pays the bank the deferred price over an agreed period.

Benefits of Tawarruq

Sharia Compliant

Tawarruq is fully sharia compliant, as it avoids riba (interest) and ensures that all transactions are transparent and ethical. This makes it an ideal choice for Muslims in Australia seeking Islamic finance solutions.

Access to Cash

Tawarruq provides a way to access cash without violating Islamic principles. This is particularly useful for personal financing, working capital, and project financing.

Flexible Financing

Tawarruq can be used for various purposes, including personal financing, business investments, and even credit card facilities. It is a versatile tool in Islamic finance.

Conclusion

Tawarruq is a key structure in Islamic finance, offering a sharia compliant way to obtain cash. Its transparency and ethical nature make it a preferred choice for many Muslims in Australia. By understanding how Tawarruq works, you can make informed decisions about your financial needs while adhering to Islamic principles.

MECHANISM OF TAWARRUQ TRANSACTIONS:

1. A customer needs cash and requests the Islamic bank to finance.
2. Instead of financing in cash, the Islamic bank purchases the commodity from the seller and sells it to the customer through murabaha contract.
3. After getting the ownership and taking possession of the purchased commodity from the Islamic bank, the customer sells the commodity to a third party purchaser on spot payment basis. The price paid by the third party purchaser on the spot fulfills the need of liquid cash of the customer.
4. Later the customer pays the deferred price to the Islamic bank pursuant to the agreed upon terms.

APPLICATIONS OF TAWARRUQ IN ISLAMIC FINANCE:

• Working capital financing
• Project financing