Question

In: Finance

Explain in details: -Types, Pillars & Conditions of Tawarruq

Explain in details:

-Types, Pillars & Conditions of Tawarruq

Solutions

Expert Solution

Tawarruq means purchasing a commodity on a deferred price either in a form of mark up sale, later selling it to a third party with the objective of obtaining cash. The term Tawarruq is used in this type of transaction is influence by the intention of the buyer of the asset who has no interest in utilizing the asset or gaining the benefit of the asset since the main intention is to obtain liquidity.

There are two types of Tawarruq : 1. Individual Tawarruq and 2. Organized Tawarruq

Individual Tawarruq:

Individual Tawarruq is a Tawarruq where a buyer buys a commodity from a seller on a deferred term and later sells it to another person for immediate cash. When the buyer sells it, the commodity is in his hand and he has the choice in either to keep it or to sell it in the future. If the buyer has the intention to sell it, the sale contract is considered valid by the majority of jurists.

Tawarruq al-Munazzam (organized) is organized in a way that the buyer has the option in either keeps the commodity or appoint the seller to be an agent to sell it or appoint a third party which is related to the bank to sell the commodity. This type of Tawarruq is common in banking practice for the purpose of consumer financing.

Pillars of Tawarruq: muwarriq (bank), mutawarriq (client) and the subject matter of tawarruq (commodity)

Conditions of Tawarruq:

Ownership of the commodities: The seller must own the commodity before selling it to the buyer.

Commodity is specified. : The seller has to explain the details of the commodity to the buyer.

Possession of commodities: The commodities which are normally used in the contract of organized tawarruq can be transferred from place to place and this kind of commodity is called a transferable commodity (manqulat). Examples include metals, cement, rice and cars.

Avoiding ‘inah sales:  As has been mentioned, the majority of jurists consider that ‘inah sales are prohibited according to Islamic law. Therefore, financial institutions avoid buying the commodities again from the client because they have already sold them to the client by installment payments for more than what they normally pay to acquire the commodities. Consequently, if they were to buy the commodities from the clients for less than what the client had paid, the contract would be an ‘inah sale.


Related Solutions

Explain in details: Criteria of Personal Financing-i (Tawarruq) from Al Quran & Hadith
Explain in details: Criteria of Personal Financing-i (Tawarruq) from Al Quran & Hadith
Explain in details: Criteria of Personal Financing-i (Tawarruq) from Al Quran & Hadith perspective.
Explain in details: Criteria of Personal Financing-i (Tawarruq) from Al Quran & Hadith perspective.
Explains in details: Conclusion you can get from contract of Tawarruq.
Explains in details: Conclusion you can get from contract of Tawarruq.
Explain the pillars in Clinical Governance .
Explain the pillars in Clinical Governance .
What are the types of hackings? Please specify each types and explain in details of what...
What are the types of hackings? Please specify each types and explain in details of what it is
explain the types of collection systems with diagram and types of vehicles in details.50marks Note:Its for...
explain the types of collection systems with diagram and types of vehicles in details.50marks Note:Its for 50 marks i need 10page answer and own answer no internet answer r else i will downvote attempt only if you knownledge about the subject r else i il downvote and its for 50marks NOTE:Its already there in chegg and its wrong answer .i need own answer with diagram and all r else i il downvote.
explain the types of collection systems with diagram and types of vehicles in details.50marks Note:Its for...
explain the types of collection systems with diagram and types of vehicles in details.50marks Note:Its for 50 marks i need 10page answer and own answer no internet answer r else i will downvote attempt only if you knownledge about the subject r else i il downvote and its for 50marks .
what are the impact test, and the types of impact test explain in details with drawing
what are the impact test, and the types of impact test explain in details with drawing
Question 4: How tripartite sale (tawarruq) facility may turn into riba based transaction? Under what conditions...
Question 4: How tripartite sale (tawarruq) facility may turn into riba based transaction? Under what conditions tawarruq sale may be shariah compliant?
-Explain the five conceptual pillars of financial management practices.
-Explain the five conceptual pillars of financial management practices.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT