International Shari'ah Research Academy for Islamic Finance (ISRA)

Answer:

The International Fiqh Academy for Muslim World League, in its 15^th session, which was held in Makkah al-Mukarramah on Saturday, 11 Rajab 1419 H.A, looked into tawarruq. After discussing, the Academy decided, as follows:

1. Firstly, tawarruq is the purchase of asset, which is in the possession of the seller, on deferred payments and then selling it to another party on the spot, in order to get cash (al-wariq);
2. Secondly, tawarruq is permissible in Islamic law, as mentioned by the majority of scholars. This is because the origin of sales is permissibility, as Allah says in Surah al-Baqarah (… and Allah has permitted sale and forbidden usury). In tawarruq, usury does not appear, either intentionally or in form, because it is a financial tool that is necessary for the settlement of one’s debt or matrimonial expenses or others;
3. Thirdly, the permissibility of tawarruq is subjected to the buyer not selling the asset for less than its original price which he had bought from the first seller, either directly or indirectly. If he does that, then he has done a sale and buyback transaction (bay’ inah), which is forbidden in Islamic law, as it consists of a trick that leads to usury. This makes the contract of bay’ inah unlawful;
4. Fourth, the Academy recommended Muslims to deal with what Allah has permitted for His slaves, from the tool called benevolent loan (qard hasan), from their pure properties. This act will purify themselves. In order to get Allah’s consent, subsequent to the provision of the loan, do not constantly remind the debtors or cause injury to the debtors. Qard hasan is a type of act that involves spending money in the way of Allah. Other similar acts include help, sympathy and pieties towards each other and relieving the grievances of other Muslims, as well as helping them to settle their problems. It is a way to protect debtors from entering into unlawful transactions. There are many texts in the sources of Islamic law that encourage people to give benevolent loans. However, the debtor must also remember that he is obliged to settle his debts as soon as possible. A good debtor is one that pays without delay.

Issuer: The International Fiqh Academy for Muslim World League; 15^th session held in Makkah, 11-15 Rajab, 1419 H.A.