Modern banking Tawarok: Evaluative study

Tawarruq is a financing arrangement in which a commodity is purchased at a higher deferred price and then sold for a lower cash price in order to obtain liquidity. In this sense, it resembles, or is synonymous with, ʿīnah. Some jurists have permitted it, either as a concession in cases of necessity or on the basis that purchasing from a third party leaves the intention solely to the seeker of liquidity, thereby sparing the seller from complicity. Others, however, have observed clear collusion between the parties and thus ruled it strictly prohibited.

This paper focuses on modern, institutionalized banking tawarruq. In this arrangement, the bank provides financing of a known cost through a series of promises, sale contracts, and agency agreements: it purchases a commodity at the request of the client, sells it to the client at a higher deferred price, and—acting as the client’s agent by contract or by convention—resells the commodity for a lower cash price. The client thus receives liquidity equal to the resale price, while the bank’s profit is represented by the difference between the two prices. Though variations of this practice exist, they generally follow the same model.

Banking tawarruq differs significantly from occasional personal tawarruq in that it involves an explicit and documented agreement to pass financing—essentially interest-based—through the form of legitimate contracts, with all parties fully aware and consenting. Its proponents justify it by claiming the absence of genuine need. However, this paper concludes that banking tawarruq must be prohibited, as it constitutes a clear form of legal stratagem, undermines Shariah objectives, facilitates the transfer of the ummah’s wealth to international markets, and diverts resources from real investment to economically unproductive uses.
Keywords: Tawarruq, Islamic Banking, Financing Contracts, Shariah Objectives, Legal Stratagems