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Search Fatawaa

Subject : Ruling on Personal Financing Used by some Islamic Banks

Fatwa Number : 2849

Date : 28-08-2013

Classified : Transactions & Marketing

Fatwa Type : Search Fatawaa

Question :

What is the ruling on personal financing used by Al-Rajihi Bank?

The Answer :

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

Personal financing used by some Islamic banks is forbidden because it is organized Tawarruq. The Iftaa` Board issued Resolution No. (171) (2012), which forbade organized Tawarruq and considered it an evasion of usury/Riba (This transaction looks lawful from the outside while it is actually unlawful from the inside). The Resolution stated: "Organized Tawarruq used by some Islamic banks is an evasion of usury because the true objective behind it is getting the cash in return for paying an interest. What actually happens in this situation is that the bank buys the commodity, sells it to the client, on credit, for a higher price, then resells it to a third party for a lesser price and hands that cash amount to the client on the spot. However, the latter is required to repay the whole amount (Higher price). In fact, this transaction is a usurious loan even though it looks like a form of Tawarruq from the outside." And Allah the almighty knows best.



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