Question

Question 4: How tripartite sale (tawarruq) facility may turn into riba based transaction? Under what conditions tawarruq sale may be shariah compliant?

Answer 1

Step 1: Explain the tripartite sale facility and Riba based transaction, also the relationship between both of them.

Tripartite sale (tawarruq) facility : Under the Islamic home financing, tripartite contract is made between three parties such as the financier, the customer and the commodity trader to make sure the sale and purchase of the commodity occurs.

Riba based transaction: Riba is a type of transaction under Islamic banking where in unequal qualities or quantites of goods are exchanged. Riba is considered to be forbidden under Sharia Law because it iis exploitative in nature.

Step 2 : Tripartite facility gets converted into riba based transaction under two cases :

1. Buying any item in instalments and selling it to the same person from whom the item is bought. This is prohibited, since it becomes a way to get a loan along with interest.

2.Tawarruq through financial instutitons under which one buys from the bank in instalments on an agreement of profit sharing, and the bank acts as a middle man to sell this for cash.

3. The objective of buying and selling does not exist.

Step 3:

The conditions under which tawarruq sale may be shariah compliant when it involves:

1. Buying any commodity from a commodity trader by instalments, and selling it for cash to someone else.

2. Mutual consent between both the parties

3. To avoid usury with Hilah