Tawarruq: Islamic Personal Financing
- 1. AL-TAWARRUQ Presented by: ïŒ Sananee Kuna @ Rosnani Muhammad ZP01455 ïŒ Zihan Mohamed Jailabdeen ZP01454 ïŒ Wan Mohammad Saupee bin Wan Yusoff (ZP01467)
- 2. CONTENT CORPORAT PROFILE BOARD OF DIRECTORS SHARIAH SUPERVISORY COUNCIL PRODUCTS AND SERVICES PROPERTY FINANCING-I (TAWARRUQ) DEFINITION PARTICIPANT IN TAWARRUQ TYPES OF TAWARRUQ ARGUMENTS ON PROHIBITED ARGUMENT ON PERMISSIBILITY ISSUES ON TAWARRUQ TAWARRUQ & BAY AL-âINAH INDUSTRY TRENDS
- 3. CORPORAT PROFILE Bank Islam, established in 1983, is Malaysiaâs maiden Shariah-based institution. First Islamic bank- Islamic Bank Act 1983 vision to be âA Global Leader in Islamic Bankingâ. Bank Islam parades a comprehensive list of more than 70 innovative and sophisticated Islamic banking products and services, comparable to those offered by its conventional counterparts.
- 4. CORPORAT PROFILE (cont.) Introduction of Interest Free Banking & Islamic Banking Window. Arrival of new competitor, Bank Muamalat Establishment of Islamic Banking Subsidiary for conventional bank. Establishment of Islamic Banking Subsidiary for conventional bank.
- 5. BOARD OF DIRECTORS Chairman of Bank Islam Malaysia Berhad Datoâ Zamani Abdul Ghani Managing Director, Bank Islam Malaysia Berhad Datoâ Sri Zukri Samat Non-Independent Non-Executive Director Abdullah Abdulrahman Abdullah Sharafi Datoâ Paduka Ismee Ismail Johan Abdullah
- 6. SHARIAH SUPERVISORY COUNCIL Ustaz Dr. Ahmad Shahbari @ Sobri Salamon Chairman Executive Chairman Ustaz Mohd Bakir Haji Mansor Member Distinguished Shariah Research Fellow Sheikh Dr. Ahmed Mohieldin Ahmed Member Head of Research and Development Department
- 7. PRODUCTS AND SERVICES 4. Wealth Management & Bancatakaful 3. Financing Products 2. Bank Islam Card-i 1. Deposit product
- 8. PROPERTY FINANCING-I (TAWARRUQ) 1. Baiti Home Financing This product is a financing facility provided by the Bank to assist customers to finance the purchase of a residential property. 2. Wahdah Home Refinancing This product is a financing facility provided by the Bank to assist customers to refinance a completed residential property
- 9. FINANCING BY CONTRACT Bai Bitaman Ajil, 50.1% Ijarah, 2.0% Ijarah Muntahiah Bit Tamleek, 0.2% Mudharabah 0.1% Murabahah 9% At- Tawarruq, 26.7% Bai Al-Inah, 10.2% Istisna', 1.7%, 0% 0% Sales 2011 (RM14,563,795)
- 10. FINANCING BY CONTRACT Bai Bitaman Ajil 50.6% Ijarah 2.7% Ijarah Muntahiah Bit Tamleek 0.1% Mudharabah 0.1% Murabahah 9.1% At- Tawarruq 20.9% Bai Al-Inah 13.6% Istisna' 2.9% Sales 2010 (RM12,271,585)
- 11. Al - Tawarruq
- 12. DEFINITION Literal Meaning - root word of tawarraqa wariq - Dirham that is manufactured from Silver - Any silver that was issued to be as a medium of exchange Technical Meaning - buying a commodity on differed payment basis and selling it on cash basis to a person other than the buyer
- 13. DEFINITION(cont.) Sale for cash of item purchased by instalment One party buys as asset from a vendor for deferred payment and then sells is to a third party for cash at a price that is lower than the deferred price IFI- Customer purchases an item from bank on a deferred payment plan, then sells it immediately to third party for obtain cash
- 14. PARTICIPANT IN TAWARRUQ The Broker A or Seller A Islamic financial Institution or the intermediate person The Client or cash seeker The Broker B or Seller B TYPES OF TAWARRUQ Classical Tararruq The Client or cash seeker Organized Tararruq (Tawarruq Al-Munazzam)
- 17. ARGUMENTS ON PROHIBITED Imam Ahmad ibn Hanbal â Prohibited (Haram) Imam Muhammad bin Hasan Al-Shaibani (Hanafee) â Discourage (Makruh) Imam ibn Taimiyyah â exceptional dealing (permitted only in the case of necessity (Dharurat)
- 18. ARGUMENTS ON PROHIBITED (cont.) âAli (r.a) has stated: Ibn Musa has said that this is what we have been told by Hushaim. The prophet PBUH has said âA time is certainly coming to mankind when people will bite each other and a rich man will hold fast what he has in his possession (his property), though he was not commanded for that. Allah the almighty said: (and do not forget liberality between yourself) and those who are forced will contract sale while the prophet PBUH forbade forced contract, one which involves some uncertainty and the sale of fruit before it is ripeââ
- 19. ARGUMENT ON PERMISSIBILITY âAllah has permitted sale and prohibited ribaâ (Al-Qurâan â 2:275) Hanbali and many other scholars permitted Al-Tawarruq Dr.Rafik Yunus al-misri - If all the three parties involved have known that the main objective of the customer fro entering the tawarruq transaction is to obtain the cash money, then all of them are sinful. - if the two of the parties have known that the seller has used the transaction for get the cash, both of them are sinful. However, if they do not know the real intention of the seller, then they are not sinful. - A person is allowed to do tawarruq in the case of necessity.
- 20. ARGUMENT ON PERMISSIBILITY (cont.) Majma Fiqh Islami 15th Meeting â Permitted 17th Meeting â Prohibited Latest Decision â Classical Tawarruq is allowed Organized tawarruq is not allowed Shariâah Supervisory Council of ABC bank â approved tawarruq for liquidity purposes. Tawwarruq is permitted, Syeikh Abdullah b.Sulaiman al-mani, Dr. Musa Adam Isa, Dr.Usamah Bahr, Dr.Sulaiman Nasir al-Ulwan
- 21. ISSUES ON TAWARRUQ 1. Fundamental Issues: Real Sale or Hilah??? Subject matter of the contract â commodity or cash? OIC Fiqh Academy ruled â Organized Tawarruq (al-Munazzam/al-Masrafi) as ânot permissibleâ because itâs mirrored al-âinah. Classic Tawarruq (al-Fardh) - allowed
- 22. ISSUES ON TAWARRUQ (cont.) 2. Operational Issues: Financial reporting in Balance sheet & Income statement â commodity trading (buy/sell) transactions, transfer of ownership, delivery evidences. Auditing â trail of audits till Profit â financing or trading? Do Broker 1 and Broker 2 exist? Physical commodity exchange hands? Stamp Duty for transfer of property should be accrued. Who pays? Transparency â can we know how much bankâs cost and profit? Early settlement â ibra`, deferred & accrued profits, locked-in period/penalty Default â taâwidh (compensation) Commodity market â volatile and fluctuate
- 24. TAWARRUQ & BAY AL-âINAH SIMILARITY No. Tawarruq Bayâ al-âinah 1. To acquire cash DIFFERENCES No. Tawarruq Bayâ al-âinah 1. 3 parties 2 parties 2. Original seller does not have relationship with Final buyer Original seller and Final buyer are same 3. Mutawarriq is free to sell to anybody for cash Is a buy-back arrangement
- 25. INDUSTRY TRENDS 1. Tawarruq Products & Services: Personal financing Asset purchase financing i.e. house, property Cash facility i.e. credit card, overdraft Deposits (investment accounts) â commodity murabahah & financing (51st SAC; 2005) Financial liquidity management â ijarah sukuk as underlying assets but must be backed by tangible asset not financial asset (58th SAC; 2006)
- 26. INDUSTRY TRENDS (cont.) 2. Financing, Advance & Others in B/S (Tawarruq) `RM Billionâ 2012 2011 2008 Bank Islam 7.530 3.904 0.167 Maybank n/a 0.223* n/a 0.394* n/a 0.005* Bank Muamalat 1.979 1.301 0.339 Bank Rakyat N/A 0.393 0.011 * âOthersâ specifically no mention about tawarruq BANK ISLAM: Increased by 4,408 percent in 5 years!!! 2nd after BBA!