Organised tawarruq through commodity: a case study of Bursa Malaysia Suq al-Sila`

Abstract

The research deals with the tawarruq transaction as it is practiced by Islamic financial institutions (IFI) with special refcrence to the practice of Bursa Malaysia Suq al-Slia ` (BMSA). BMSA is a platform exclusively designed to conduct lawarruq transactions that helps IFIs resolve some of their problems pertaining to liquidity management. The research studies the process of tawarruq as found in the texts ofIslamie law and the organized lawarruq as practiced by IFIs. Organized tawarruq is a newly designed contract that helps a person who is in need acquire liquidity. The process mainly involves the bank, the client and a third party. The bank sells the commodity to the client on credit and then the client sells this commodity to a third party while the bank itself organizes this third party. The research has utilized the analytical and descriptive approaches to describe the issues and then to analyze them in the light of Sharf`ah. The transactions as practiced by BMSA involve some issues related to Sharf`ah compliance. The research has discussed the issue of possession, Crude Palm Oil (CPO) as foodstuff and other issues related to organized tawarruq. These have been highlighted and discussed fi`om the Shal`iah standpoint along with the rules ofBMSA. The research reveals that there are two fundamental Sharf`ah compliance issues, namely, that of agency from the buyer to the seller where the client appoints the bank as his agent, and the return of the commodity to the original seller. Both of these issues are still under discussion and remain unresolved.