The proponents of Tawarruq have promoted it as a one-stop shop capable of fulfilling the majority of the financial and commercial needs of Islamic banks’ customers. It is particularly popular with banks due to its operational ease, quick execution and virtually zero risk. Moreover, given that it is a cash-in-hand product with minimal documentary requirements, clients also favour it given that it affords them a high degree of comfort and independence at the disbursement phase.

Until just over a decade earlier, the Bai Ina and BBA family of buyback products were regarded as the most desirable financing product in general in Malaysia for possessing precisely the same characteristics mentioned above. However, since 2013, both these products have been gradually phased out, and effectively rendered commercially unviable due to more stringent regulatory requirements imposed by Bank Negara Malaysia, designed to dilute their explicit buyback nature and make them more ‘real’ transactions.

In their place, Tawarruq was selected as the most appropriate successor largely by virtue of supposedly being a multi-party, rather than a bilateral transaction. Consequently, the magnitude of financing via Tawarruq in Malaysia surged enormously to take over the volume of Bai Ina and BBA, in addition to its already huge deployment for liquidity management by Islamic financial institutions.

Presently, despite being projected as a more real and better-executed transaction than it earlier was, Tawarruq remains subject to reproach. The primary summary concern is that the various contractual layers that claim to cover the necessary Shariah requirements for Tawarruq are in actuality little more than a cosmetic arrangement, and it therefore is allegedly no different to a conventional loan product. In this regard, a lack of familiarity with the fundamental prerequisites of Shariah compliant contracts is also likely to be an important reason why so many in the industry have remained comfortable with Tawarruq for so long.

• This course is intended to provide value addition in a number of areas, and to enable participants answer the following questions:
  • What are the contentions surrounding the buyback family of products, and on what basis is Tawarruq promoted as a suitable replacement for them?
  • What are the basic prerequisites in relation to structuring Shariah compliant contracts, and how do these help us to identify the numerous concerns that have been associated with Tawarruq since the outset, and which largely remain unaddressed?
  • How can the business transactions of Murabahah, Bai Muajjal, Istisna, Ijarah, Mudarabah, Musharakah, and Salam be used to structure a range of alternative products that can be offered in place of Tawarruq?
  • What are the numerous Shariah requirements, concerns and flashpoints relating to each alternative product that must be followed and factored in, which allow us to demonstrate that these alternative products are superior to Tawarruq?