Despite the confusion caused by the recent resolution published by the Makkah-based International Council of Fiqh Academy (ICFA), an organ of the Organization of Islamic Conferences (OIC), which states, on Tawarruq, it seems that the contract is rallying with a major Islamic bank in Malaysia launching an innovative new Tawarruq product based on mobile phone airtime. At the same time, a prominent Gulf Shariah advisory has also recently given a fatwa (legal opinion) stressing that the organized Tawarruq contract is Shariah-compliant, thus proving a slap in the face for the ICFA Resolution 179 (19/5) in relation to "Tawarruq: Its meaning and types (classical applications and organized Tawarruq)" which was adopted by the academy at its 19th session held at end April 2009 in Sharjah, UAE.
Tawarruq is used as a cash management instrument by some Islamic banks which allows customers to raise funds. It has been popular in the GCC (Gulf Cooperation Council) countries until recently save Qatar, where only one bank, Al-Safa, the Islamic banking window of Qatar Commercial Bank (QCB), has been offering Tawarruq as a cash management option to its clientele.
RHB Islamic Bank, one of Malaysia's largest Islamic financial institutions, on Thursday launched a Tawarruq product, which Managing Director Jamelah Jamaluddin claims is the first commodity Murabaha type product based on mobile phone airtime. RHB Islamic Bank signed an agreement with Sedania Media Group and E-Pay for the introduction of telecommunication airtime in its Tawarruq offerings.
"Tawarruq gives Islamic banks the capability to do more than asset financing. In a Tawarruq transaction, an asset or commodity is used as an intermediary to provide financing. As an alternative financial services provider to conventional banking, we are committed to provide our customers with a professional and rewarding banking experience. In keeping up with its commitment to be at the forefront of Islamic banking, RHB will soon launch other products based on airtime and its trading system. We are already developing other products using this commodity for our customers to enjoy greater Islamic banking experience," added Jamelah.
Normally in a Tawarruq transaction, according to RHB, the purchaser will buy a commodity from the bank on a deferred payment plan and, thereafter, sell it to the market to raise instant funds.
"In the past, commodities such as precious metals and crude palm oil have been used as the intermediary asset for Tawarruq. Due to its nature and the environment that it operates, it presents a barrier for a wider application of Tawarruq.
The commodity requires huge storage and logistics cost, and is subject to price and forex fluctuations as well as governed by its spot-market regulations," stresses RHB.
However, according to ICFA Resolution 179, "Tawarruq can be defined as a person (Mustawriq) who buys merchandise at a deferred price, in order to sell it in cash at a lower price. Usually, he sells the merchandise to a third party, with the aim of obtaining cash. "This is the classical Tawarruq, which is permissible, provided that it complies with the Shariah requirements on sale (Bai')." Resolution 179 further defines "Organized Tawarruq when a person (Mustawriq) buys a merchandise (commodity) from a local or international market on deferred price basis. The financier arranges the sale agreement either himself or through his agent.
Simultaneously, the Mustawriq and the financier executes the transactions, usually at a lower spot price; and a reverse Tawarruq as similar to organized Tawarruq, but in this case, the (Mustawriq) is the financial institution, and it acts as a client."
The academy jurists clearly stipulate in Resolution 179 that "it is not permissible to execute both organized and reverse Tawarruq because simultaneous transactions occurs between the financier and the Mustawriq, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This is considered a deception, i.e. in order to get the additional quick cash from the contract. Hence, the transaction is considered as containing the element of Riba."
It is clear that several Shariah advisories seem to reject the ICFA resolution on organized Tawarruq. As such it is important that there emerges some consensus so as to preempt further confusion in the market.
Nevertheless, the new RHB Tawarruq product introduces the use of airtime as the underlying commodity with Sedania as the ready buyer and E-Pay as the ready seller for the commodity. The product, says RHB, "addresses the issues surrounding other commodities, making it more attractive to banks and their customers alike".
The promoters also claim that the new airtime-based structure revolutionizes the way Tawarruq transactions are conducted.
By Mushtak Parker
© Arab News 2009
