Tawarruq via the bank and differences in fatwas concerning it from fiqh councils and banks’ scholars

Firstly:  

Tawarruq may be permissible or haraam. The permissible kind
is that which involves buying an item from a trader by instalments, and
selling it for cash to someone else. We have discussed the permissibility of
this kind of tawarruq and its conditions in the answers to questions no.
45042 and
36410. 

As for the haraam kinds of tawarruq, there are two kinds: 

1 – Where you buy an item by instalments and sell it to the
one from whom you bought it. This is what is called bay’ al-‘eenah, and it
is called al-‘eenah because the exact product (‘ayn al-sal’ah) that he sold
goes back to him. This is haraam, because it is a trick that is used to get
a loan with interest, and it is haraam for that reason according to the
majority of scholars.  

2 – Tawarruq through the banks or organized tawarruq, which
means that you buy an item from the bank by instalments – and in most cases
it is muraabahah (profit sharing), then you delegate the bank to sell it for
cash, and this transaction is also haraam. 

A statement issued by the Islamic Fiqh Council held from
19-23/10/1424 AH (13-17/12/2003 CE) states that this transaction is haraam,
and warns banks not to exploit this transaction in ways that are not
Islamically acceptable. In it, it says: 

After listening to the research presented on this topic and
the discussions concerning it, it is clear to the council that the tawarruq
done by some banks at present means: 

That the bank, in a regular procedure, buys an item (that is
not gold or silver) from the global market or otherwise for the mustawriq
(the person who is engaging in this transaction of tawarruq to obtain cash)
and sells it to him for a price to be paid later on, on the basis that the
bank will commit – either as a condition of a contract or according to
custom – to sell it on his behalf to another purchaser for a price to be
paid immediately, and it will hand over that price to the mustawriq. 

After examining and studying the matter, the council has
determined the following: 

Firstly: Tawarruq in the form discussed above is not
permissible for the following reasons: 

1.The seller’s (i.e., the bank’s)
commitment in the tawarruq contract to act as the deputy in selling the item
to another purchaser or arranging for someone to buy it makes it akin to the
‘eenah transaction that is forbidden in sharee’ah, whether this commitment
is stipulated clearly or is assumed on the basis of what is customary.

2.This transaction frequently
leads to a failure to fulfil the condition of taking possession of goods,
which is essential according to sharee’ah in order for the transaction to be
valid.

3.This transaction is in fact
based on providing finance with interest from the bank to the customer, and
the process of buying and selling is illusionary in most cases.

This transaction is not the genuine tawarruq that is known to
the fuqaha’. In its fifteenth session the Fiqh Council stated that it is
permissible with regard to genuine transactions and subject to specific
conditions which they described. That is because there are many differences
that were discussed in previous statements. 

Genuine tawarruq is based on the real purchase of an item for
a price to be paid at a later date, which enters into the possession of the
purchaser, and he acquires it in a real sense, and he becomes responsible
for it, then he sells it for cash because he needs the money, and he may or
may not be able to get it. The difference between the price of purchase that
is deferred and the sale price does not come into the bank’s possession, and
the bank is only introduced into this tawarruq transaction in order to
justify getting more for the loan that it gave to that individual by means
of transactions that are illusionary in most cases.  

Secondly: The Fiqh Council advises all banks to avoid haraam
transactions, in obedience to the command of Allaah. 

Whilst the Council appreciates the efforts of the Islamic
banks to save the Muslim ummah from the calamity of riba, it also urges them
to make use of the genuine transactions that are based on the rulings of
sharee’ah, without resorting to illusionary transactions that are
essentially pure financing in return for extras that benefit the financing
party. End quote. 

Shaykh ‘Abd al-Rahmaan ibn Ibraaheem al-‘Uthmaan (may Allaah
bless him) said: 

The reasons why we say that organized tawarruq as done by the
banks is not permissible are as follows: 

1.Riba – as stated above – in the
report of Sa’eed ibn al-Musayyab (may Allaah have mercy on him).

2.(Which is similar to what we
have mentioned above) the mustawriq is not interested in the product per se,
rather he is interested in the money, and the sale in question is an
illusionary sale. The whole issue boils down to obtaining cash immediately,
to be paid for later on with a greater amount.

What indicates that this sale is something illusionary is the
following: 

The bank does not take possession of the product purchased
from the global market in any real sense, and it does not receive any
original receipts from the warehouses where this product is kept; the
product is traded on the stock market and moves from one purchaser to
another until it ends up with the final consumer, who is able to take
possession of what he has bought. 

In the case of the mustawriq it is even worse: he does not
take possession of the product in a real sense or even on paper. Hence he is
selling something that he has never acquired and that is not even specified,
because what the bank sells to its customer is something that is owned by
the bank, which is defined by a number used to identify the product, and
this number does not refer to small quantities of the product, but it is a
number that is used for the big unit that the bank divides among those who
seek tawarruq. 

3.Appointing the bank to act on
behalf of the customer in the case of bank-type tawarruq is contrary to what
is expected of the agent, because what the bank is doing in its role as
agent is contrary to the interests of the mustawriq, which is selling the
product for a lower price than that for which the mustawriq bought it. (If
there is any aim to be achieved from a contract in the true sense of the
word, and there is a condition stipulated that contradicts this aim, then
this contract is self-contradictory in that it both affirms and denies the
aim of the contract, so nothing can be achieved and this kind of condition
is invalid.) Appointing the bank as one’s agent in this tawarruq is one such
condition, even though it is not stipulated. If there was no such
appointment, the mustawriq would not have bought from the bank in the first
place.

4.Giving guarantees to the last
purchaser. The bank makes a deal with an independent party that commits to
buying the product that is being used in this transaction. This commitment
ensures that the selling price will not go beyond a certain limit as a
protection against fluctuation in prices. In return for this assurance, the
bank is committed to selling it for him, in the sense that the bank is not
entitled to sell the product in the open market even if the price rises
above the price agreed upon with the second purchaser. Thus these assurances
come from both parties: from the bank which commits to sell to the second
purchaser, and from the purchaser who agrees to buy it at a certain price.

5.Organized tawarruq differs from
the kind of tawarruq which is permitted by the majority of fuqaha’ in
several ways, such as the following:

(a)The bank is in charge of
selling the product that was bought from it, to whomever it wants, whereas
when the mustawriq is the one who is in charge of selling when he enters
into a tawarruq transaction by himself, and the first seller has nothing to
do with the sale of the product to the final purchaser.

(b)There is prior agreement
between the bank and the final purchaser which guarantees that he will
purchase whatever the bank offers at the price for which the bank bought it,
as stated above, whereas in individual tawarruq, the mustawriq is the one
who sells the item for the price that he paid for it, or more or less.

6.Organized tawarruq comes under
the heading of bay’ al-‘eenah which is haraam, because the bank is the
source of cash for the mustawriq in both cases. Cash is acquired via the
bank and through its mediation; if the purchaser did not know that the bank
would give him cash later on, he would not have embarked on this transaction
in the first place.

7.Organized tawarruq through the
bank is not the same as bay’ al-‘eenah which is permitted by al-Shaafa’i,
because he stipulated that there should be no connection between the two
sales, and that one should not show any intention of acquiring cash; neither
condition is met in this case.

8.It nullifies the aims of
Islamic banking in many ways:

(a)It imitates the riba-based
banks in offering financing and insurance.

(b)It limits itself to this and no
other forms of investments. Tawarruq now represents 60% of the bank’s
financing services.

(c)It creates confusion between
Islamic and riba-based banks.

(d)It negates the efforts to
encourage Islamic banks to offer financing in the form of investments via
mushaarakah (partnerships), mudaarabah (profit sharing), and so on.

9.It causes Muslim money to leave
the country, because tawarruq transactions take place in the global market,
so Muslim money leaves the country in order for others to benefit from it.

From the Muslim.com website. 

Secondly: 

With regard to the questioner’s comment that this transaction
is permitted by senior scholars, that is not correct. Those who said it is
permitted are the sharee’ah committees in Islamic banks, or the Islamic
departments in riba-based banks! It should also be noted that not all of
them regard this transaction as permissible. 

Many of them have refuted the view of these sharee’ah
committees that it is permissible. Shaykh Khaalid al-Mushayqih has
undertaken comprehensive research on the prohibition of this transaction.
See Majallat al-Buhooth al-Islamiyyah (73/234-237). There are also
refutations by Dr. ‘Ali al-Saloos, Dr. Saami Suwaylim and Dr. ‘Abd-Allaah
ibn Hasan al-Sa’eedi – who have all presented research on this issue to the
Fiqh Council – as well as Shaykh ‘Abd al-Rahmaan al-‘Uthmaan and Dr.
Muhammad ibn ‘Abd-Allaah al-Shabaani. Please see Muslim.com website. 

See also the answer to question no.
60185. 

With regard to your own situation: so long as you trusted
those committees and followed their opinion, and you did not know that their
view is weak, then we hope that there is no blame on you, but you should
resolve not to do it again in the future. 

We ask Allaah to guide you to all that is good and help you
to pay off the debts that you have. 

And Allaah knows best.