Tawarruq in personal financing: theory and practice / Zainor Nasrah Abdul Rahman

Islamic personal financing is offered to cater to the needs of personal financing that complies with Shariah. Beginning with the concept of Bay al-Inah, its application has undergone several strong critiques that have prompted the introduction of Tawarruq. Even though this concept is more preferable than Bay al-Inah, its implementation by industry players has attracted the serious concerns of Shariah scholars in terms of its arrangement. If the arrangement is executed improperly, the contract may be rendered invalid, thus resulting in that it will not comply with Shariah. Hence, this study intends to examine the practice of the Tawarruq arrangement based on the practitioners’ perspective. Also, this study aims to assess whether the current practice of the Tawarruq arrangement has been able to comply with the classical and contemporary Shariah rulings, Bank Negara Malaysia (BNM)’s guidelines and requirements; and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
Shariah Standards. Questionnaires were distributed to the officers of the Malaysian Islamic banks who dealt directly with their customers as well as those of the operations side. The findings have suggested that the Islamic banks have executed the concept in accordance with the requirements stipulated by BNM in the Shariah resolution. However, in discussing the findings in the light of the AAOIFI Shariah Standards, this study have found that there were elements contradicting the standard particularly in appointing an agent for selling back the commodity to the market. In addition, discussion on the findings based on the classical and contemporary Shariah scholars, the arrangement of Tawarruq in the current practice has found the evidences of the Tawarruq Munazzam in its arrangement. Therefore, BNM as the authoritative body should initiate towards a stricter practice while harmonising the practice within the industry players.