In its basic form, Tawarruq is an asset sale to a purchaser with deferred payment terms. The purchaser then sells the asset to a third party to get funds. Organised Tawarruq is similar although the transactions are executed through banks.
Reuters reports Shariah adviser Rusni Hassan saying that Organised Tawarruq as it is currently practised is not ideal from the Shariah's viewpoint.
According to the report (Nov 4, 2009), Rusni opines that organised Tawarruq should avoid specifying beforehand the parties' obligations under the contract although this protects their legal rights, backing a divisive Fiqh Academy ruling that had thrown the industry into turmoil. She objects to organised Tawarruq because the two contracts are in one when they should be independent of each other.
I agree with her views but I foresee it will further divide the industry especially when respected scholars like Nizam Yaqubi and Akram Laldin see no harm in organised Tawarruq.
Other scholars who disapprove of Tawarruq include Muhammad Nejatullah Siddiqi and Monzer Kahf.
Siddiqi views Tawarruq to be identical to interest based loans both from the functional and macroeconomic perspective. His justification for categorising Tawarruq as non-compliant is due to its harms (mafasid) being greater that its benefits (masalih). He lists;
1) creation of excessive debt;
2) exchange of money with more money in future, which is unfair in view of the risk and uncertainty involved;
3) debt proliferation, which is liken to gambling and speculation;
4) inflationary expansion;
5) inequity in the distribution of income and wealth;
6) greater instability in the economy; and
7) inefficient allocation of resources.
as the many harms of Tawarruq.
Kahf opines that Tawarruq is worse than the practice of interest-based loan legally and economically.
I have to disagree (with apologies) with Sheikhs Yaqubi and Akram on the permissibility of Tawarruq. Being of limited knowledge, I depend on the views and opinions of the scholars and in this case the arguments presented by Siddiqi make more sense to me.
Reuters reports Shariah adviser Rusni Hassan saying that Organised Tawarruq as it is currently practised is not ideal from the Shariah's viewpoint.
According to the report (Nov 4, 2009), Rusni opines that organised Tawarruq should avoid specifying beforehand the parties' obligations under the contract although this protects their legal rights, backing a divisive Fiqh Academy ruling that had thrown the industry into turmoil. She objects to organised Tawarruq because the two contracts are in one when they should be independent of each other.
I agree with her views but I foresee it will further divide the industry especially when respected scholars like Nizam Yaqubi and Akram Laldin see no harm in organised Tawarruq.
Other scholars who disapprove of Tawarruq include Muhammad Nejatullah Siddiqi and Monzer Kahf.
Siddiqi views Tawarruq to be identical to interest based loans both from the functional and macroeconomic perspective. His justification for categorising Tawarruq as non-compliant is due to its harms (mafasid) being greater that its benefits (masalih). He lists;
1) creation of excessive debt;
2) exchange of money with more money in future, which is unfair in view of the risk and uncertainty involved;
3) debt proliferation, which is liken to gambling and speculation;
4) inflationary expansion;
5) inequity in the distribution of income and wealth;
6) greater instability in the economy; and
7) inefficient allocation of resources.
as the many harms of Tawarruq.
Kahf opines that Tawarruq is worse than the practice of interest-based loan legally and economically.
I have to disagree (with apologies) with Sheikhs Yaqubi and Akram on the permissibility of Tawarruq. Being of limited knowledge, I depend on the views and opinions of the scholars and in this case the arguments presented by Siddiqi make more sense to me.
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