The Problematics of Personal Finance Products in Jordan

The emergence of personal finance products in Jordan:

The experience of Islamic banking in Jordan is considered one of the earliest global experiences in Islamic banking. The Jordan Islamic Bank is considered the oldest Islamic bank in the world after Dubai Islamic Bank and Faisal Islamic Bank. The Jordanian experience was founded on the Maqasid (objectives of Sharia) thought, and giants of its Sharia boards were mentored by the scholar Dr. Muhammad Fathi Al-Darini (the Little Shatibi) and the scholar Sheikh Mustafa Al-Zarqa (pioneer of the Fiqh of contemporary transactions).
The Jordanian experience in the previous period was distinguished by its innovation of diverse financial products. Among the most prominent products it pioneered are: the Murabaha to the Purchase Order product - which was conceived as a banking product by Dr. Sami Hamoud, the first general manager of the Jordan Islamic Bank - Mudaraba bonds, the gradual sale system in Ijara Muntahia Bittamleek (leasing ending with ownership), the Ju'ala product, products for financing maintenance and finishing works, and others.
The Jordanian banking experience in the previous period largely avoided personal finance products as much as possible. Exceptions could be made for cases where the bank needed these products as an alternative to interest-based products in managing the treasury department.
When one of the Islamic banks in Jordan began implementing the organized Tawarruq product in 2010 CE, we witnessed a strong reaction against this new experiment through the General Iftaa Council's ruling on organized Tawarruq in 2011 CE, and through the Organized Tawarruq and Riba-based Stratagems Conference, which was supported by the rest of the Jordanian Islamic banks in 2012.
The Jordanian General Iftaa Council's resolution No. (171) (3/2012) states: "What some Islamic banks are conducting as organized banking Tawarruq is nothing but a form of circumvention of Riba (usury). This is because the real intent of this process is to obtain money in exchange for an increase. The bank carries out a superficial purchase of goods, then sells them to the customer for a deferred amount. Subsequently, it sells them again to a third party for a lesser amount than the first, gives the immediate amount to the customer, and records the entire deferred amount as an obligation upon him."
In its reality, this is an interest-based loan, even if outwardly it appears as a form of Tawarruq. It is narrated from Imam Malik, may Allah have mercy on him, that he was asked about a man who sells goods for one hundred dinars on credit. When the payment becomes due between them, the buyer says to the seller: Sell it for me to a man for cash, as I am not familiar with selling. He said: There is no good in it, and he forbade it. [Al-Mudawwana, Vol.9/P.179] End quote.
Following that, the banks that had previously implemented organized Tawarruq began to apply personal finance products, and the issue of agency (Wakalah) was removed. This means that the common form of organized Tawarruq was based on the customer authorizing the bank to purchase and sell the commodity on their behalf. The condition of the customer authorizing the bank was removed and replaced by the customer authorizing a brokerage company affiliated with the bank itself, as a way to circumvent the predicament of organized Tawarruq.
However, if we refer back to the definition of organized Tawarruq in the resolution of the International Islamic Fiqh Academy and the resolution of the General Iftaa Council, it will become clear that organized Tawarruq includes three scenarios:
1. The customer authorizing the bank to purchase and sell the commodity. 
2. The bank authorizing a third party to sell the commodity. 
3. The existence of collusion between the seeker of Tawarruq (Mustawriq) and the bank to purchase and sell the commodity.
Resolution No. (179) of the International Islamic Fiqh Academy states:
First: Types of Tawarruq and their rulings:
(1) Tawarruq in the terminology of jurists: It is the purchase by a person (Al-Mustawriq) of a commodity for a deferred price in order to sell it for cash at a lower price, generally to someone other than the one from whom it was purchased, with the aim of obtaining cash. This type of Tawarruq is permissible according to Sharia, provided that it meets the Sharia established conditions of sale.
(2) Organized Tawarruq in contemporary terminology: It is the same image of Tawarruq where the Mustawriq purchases a commodity from local or international markets or similar for a deferred price, and the seller (the financier) undertakes the arrangement of its sale, either by himself, by authorizing another, or through collusion between the Mustawriq and the seller to do so, for a lower cash price, generally.
(3) Reverse Tawarruq: It is the same image of organized Tawarruq, except that the Mustawriq is the institution and the financier is the client.
Second: The two types of Tawarruq (organized and reverse) are not permissible. This is because they involve collusion between the financier and the seeker of Tawarruq, explicitly, implicitly, or customarily, as a stratagem to obtain present cash for a larger amount owed in the future, which is RibaزBased on that, personal finance products become a type of organized Tawarruq – which was prohibited by the resolution of the International Islamic Fiqh Academy and the resolution of the General Iftaa resolution – that is carried out through collusion, arrangement, and organization between the customer and the bank regarding the purchase and sale of the commodity.
The definition of organized Tawarruq  is  the common practice of lenders to purchase goods for those seeking Tawarruq and then resell them with authorization from the latter or through collusion, understanding, and prior agreement to do so, for the purpose of obtaining cash. It is not limited to the case of the customer authorizing the bank to sell the commodity on their behalf.
In the year 2024 CE, all Jordanian Islamic banks successively adopted personal finance products for all clients. Some of them even started applying this product to finance the debts of their defaulting clients, and this is what is called "selling debt for debt," which is a circumvention of Riba.
Therefore, this can be considered a turning point in the experience of Islamic banking in Jordan. In conclusion, the Jordanian experience is one of the earliest to have implemented Islamic banking globally, and it is one of the latest to have offered personal finance products to all clients.

The problematic nature of the expansion in the application of personal finance products:
Personal finance products are considered a dividing line in the experience of Islamic banking, and the jurisprudential debate often revolves around their legitimacy. However, this debate frequently does not reach a fruitful conclusion because it detaches the research on this issue from its overarching principles. Personal finance products should be understood within the framework of the foundations and rules of Islamic finance.
Contemporary jurisprudential research predominantly deals with personal finance products as a contemporary issue. There are two main approaches among contemporary scholars in dealing with modern financial developments, namely:
The first: The approach of scholars who focus on the pillars and conditions of the contract and the avoidance of its invalidating factors. If the condition of possession is met in personal finance products and superficiality is absent, then it is permissible because the general rule in transactions is permissibility.
The second: The approach of scholars who prioritize the outcomes and objectives (Maqasid). The reality of personal finance is cash for cash with an increase, and this is a circumvention of Riba (usury). The intervening contracts are of no consequence because they are not the intended purpose.
Merely examining the different opinions and their evidence may not be very beneficial unless we understand the root of the issue. Personal finance products stem from the foundational principles and rules of Islamic finance that distinguish it from interest-based finance.
Among the most prominent principles upon which Islamic finance is based is the achievement of economic efficiency through the diversification of contracts and their comprehensiveness of various economic activities. For example, the manufacturing sector needs the Istisna' (a sale transaction where commodity is transacted before it comes into existence) contract, the commodity financing sector needs the Murabaha (an Islamic financing structure that works as a sales contract, fixing the price of goods or items as required by a customer, inclusive of a pre-agreed profit margin) contract, the service financing sector needs the Ijara Mawsoofa bi al-Dhimma (forward lease) contract, and the investment sector needs the Mudaraba (profit-sharing) and Musharaka (partnership) contracts.
As for interest-based finance, it primarily addresses people's need for cash and essentially has only one contract, whose forms may vary but ultimately returns to the loan with interest.
Personal finance products address people's need for cash, thus they are classified as cash financing products. They are preferred by both the bank and the clients over many other Sharia-compliant contracts because they are considered less risky for the bank and their procedures are simpler for the clients.
Therefore, the expansion in the application of personal finance products distorts the structure of Islamic finance and makes the difference between it and interest-based finance superficial. It limits the efforts of Islamic banks to achieve economic efficiency, which requires Islamic banks to meet the needs of people in various economic sectors and diversify Islamic financial products in a way that suits these different sectors.
Finally, we found that the largest scholarly institution that has permitted personal finance products (banking finance) with Sharia-compliant controls is the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). It stipulated that banking Tawarruq is permissible for necessity, under specific conditions, and not as a form of financing or investment.