AL-TAWARRUQPresented by: Sananee Kuna @ Rosnani Muhammad

ZP01455 Zihan Mohamed Jailabdeen ZP01454 Wan Mohammad Saupee bin Wan

Yusoff (ZP01467)

CONTENT CORPORAT PROFILEBOARD OF DIRECTORSSHARIAH SUPERVISORY COUNCILPRODUCTS AND SERVICESPROPERTY FINANCING-I (TAWARRUQ)DEFINITIONPARTICIPANT IN TAWARRUQ TYPES OF TAWARRUQ ARGUMENTS ON PROHIBITED ARGUMENT ON PERMISSIBILITYISSUES ON TAWARRUQTAWARRUQ & BAY AL-’INAHINDUSTRY TRENDS

CORPORAT PROFILEBank Islam, established in 1983, is Malaysia’s maiden Shariah-based institution. First Islamic bank- Islamic Bank Act 1983vision to be “A Global Leader in Islamic Banking”.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.

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.

BOARD OF DIRECTORSChairman of Bank Islam Malaysia Berhad

Dato’ Zamani Abdul Ghani

Managing Director, Bank Islam Malaysia Berhad

Dato’ Sri Zukri Samat

Non-Independent Non-Executive Director

Abdullah Abdulrahman Abdullah Sharafi

Dato’ Paduka Ismee Ismail

Johan Abdullah

SHARIAH SUPERVISORY COUNCIL

Ustaz Dr. Ahmad Shahbari @ Sobri SalamonChairman

Executive Chairman

Ustaz Mohd Bakir Haji MansorMember

Distinguished Shariah Research Fellow

Sheikh Dr. Ahmed Mohieldin AhmedMember

Head of Research and Development Department

PRODUCTS AND SERVICES

4. Wealth

Management &

Bancatakaful

3. Financing Products

2. Bank Islam Card-i

1. Deposit product

PROPERTY FINANCING-I (TAWARRUQ)

1. Baiti Home FinancingThis product is a financing facility provided by the Bank to assist customers to finance the purchase of a residential property.

2. Wahdah Home RefinancingThis product is a financing facility provided by the Bank to assist customers to refinance a completed residential property

FINANCING BY CONTRACT

Bai Bitaman Ajil, 50.1%

Ijarah, 2.0%Ijarah Muntahiah Bit Tamleek, 0.2%

Mudharabah0.1%

Murabahah9%

At- Tawarruq, 26.7%

Bai Al-Inah, 10.2%

Istisna', 1.7%,

Sales 2011 (RM14,563,795)

FINANCING BY CONTRACT

Bai Bitaman Ajil50.6%

Ijarah2.7%

Ijarah Muntahiah Bit Tamleek0.1%

Mudharabah0.1%

Murabahah9.1%

At- Tawarruq20.9%

Bai Al-Inah13.6%

Istisna'2.9%

Sales 2010 (RM12,271,585)

Al - Tawarruq

DEFINITION Literal Meaning

- root word of tawarraqawariq - 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

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

PARTICIPANT IN TAWARRUQThe Broker A or Seller AIslamic 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)

Classical Tawarruq

Organised Tawarruq

ARGUMENTS ON PROHIBITED

Imam Ahmad ibn Hanbal – Prohibited (Haram)Imam Muhammad bin Hasan Al-Shaibani (Hanafee) – Discourage (Makruh)Imam ibn Taimiyyah – exceptional dealing (permitted only in the case of necessity (Dharurat)

ARGUMENTS ON PROHIBITED (cont.)

“Ali (r.a) has stated: Ibn Musa has said that this is what we have been told by Hushaim. The prophet PBUH has said ‘A 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 ripe’”

ARGUMENT ON PERMISSIBILITY“Allah has permitted sale and prohibited riba”(Al-Qur’an – 2:275)Hanbali and many other scholars permitted Al-TawarruqDr.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.

ARGUMENT ON PERMISSIBILITY (cont.)

Majma Fiqh Islami 15th Meeting – Permitted 17th Meeting – Prohibited Latest Decision – Classical Tawarruq is allowed

Organized tawarruq is not allowedShari’ah Supervisory Council of ABC bank – 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

ISSUES ON TAWARRUQ1. Fundamental Issues:

Real Sale or Hilah???Subject matter of the contract – commodity or cash?OIC Fiqh Academy ruled – Organized Tawarruq (al-Munazzam/al-Masrafi) as “not permissible” because it’s mirrored al-’inah.Classic Tawarruq (al-Fardh) - allowed

ISSUES ON TAWARRUQ (cont.)

2. Operational Issues:Financial reporting in Balance sheet & Income statement – commodity trading (buy/sell) transactions, transfer of ownership, delivery evidences.Auditing – trail of audits tillProfit – 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 – can we know how much bank’s cost and profit?Early settlement – ibra`, deferred & accrued profits, locked-in period/penaltyDefault – ta’widh (compensation)Commodity market – volatile and fluctuate

Commodity Financial Obligation

Cash Financial Obligation

PERMISSIBLE

FORBIDDEN

Al-Bay’

Interest bearing loan

TAWARRUQ & BAY AL-’INAHSIMILARITY

No. Tawarruq Bay’ al-’inah

1. To acquire cash

DIFFERENCES

No. Tawarruq Bay’ al-’inah

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

INDUSTRY TRENDS1. Tawarruq Products & Services:

Personal financingAsset purchase financing i.e. house, propertyCash facility i.e. credit card, overdraftDeposits (investment accounts) – commodity murabahah & financing (51st SAC; 2005)Financial liquidity management – ijarah sukuk as underlying assets but must be backed by tangible asset not financial asset (58th SAC; 2006)

INDUSTRY TRENDS (cont.)2. Financing, Advance & Others in B/S (Tawarruq)

`RM Billion’2012 2011 2008

Bank Islam 7.530 3.904 0.167Maybank n/a 0.223* n/a 0.394* n/a 0.005*Bank Muamalat 1.979 1.301 0.339Bank Rakyat N/A 0.393 0.011* “Others” specifically no mention about tawarruq

BANK ISLAM: Increased by 4,408 percent in 5 years!!!2nd after BBA!

Q & A