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.
If the purpose behind purchasing the commodity—such as palm oil, shares, or metals—is solely to obtain cash, and the commodity itself is not genuinely intended by the buyer but is merely a means to acquire cash, then this transaction is known in Islamic jurisprudential and financial terminology as "Tawarruq."
The term "Tawarruq" originates from the word "Wariq", which means silver or cash, implying the pursuit of liquidity or "cashing out."
There are two types of Tawarruq:
First: When the Mutawarriq (the buyer) purchases a commodity from a seller and then sells it to a third party without any prior agreement between the buyer and seller, this is called individual (personal) Tawarruq. It is considered disliked (Makruh) in Islamic law, but it becomes permissible (Mubah) when there is a genuine need for it.
Second: When the financing institution agrees with the Mutawarriq (the client seeking cash) to purchase goods, and then resells them on the client's behalf—through agency (Wakālah)—with prior arrangement, collusion, or mutual understanding, or if it is the customary practice that such commodities are merely formal tools for obtaining cash (i.e., they are not truly intended for trade), or if this method is routinely practiced by the institution, even if not explicitly stated in contracts, and the real objective of the transaction is to obtain immediate cash in exchange for a greater deferred payment, then this is known as organized (structured) Tawarruq.
This form of Tawarruq is haram (prohibited) because the entire transaction is a trick to obtain a cash loan with interest (Riba). It constitutes a deceptive workaround to what is essentially usury, and it includes multiple religious and economic harms, such as:
First: The Sharia violations involved. Structured (organized) Tawarruq contradicts the objectives of Islamic financial transactions, as it amounts to a form of deception to circumvent Riba (usury). In this arrangement, the client’s real aim is to acquire immediate cash in exchange for a deferred surplus (i.e., paying more over time), not to benefit from the commodity itself. Moreover, the purchased commodity may not even come under the full ownership and liability (Damān) of the client. Instead, the financial institution or its affiliated brokerage firm often handles the purchase and resale on behalf of the client. Commonly, these institutions do not adhere to the Sharia condition of actual or constructive possession (Qabḍ). Some commodities used in such structured Tawarruq deals are sold multiple times at once, leading to further violations.
Second: The negative impact on the economy due to the fictitious nature of the transaction and its failure to achieve the Sharia objective of circulating wealth. In structured Tawarruq, the client approaches the Islamic financial institution seeking cash, and ends up signing a purchase contract for a commodity—often traded on global exchanges—and a power of attorney authorizing the institution or its agent to sell the same commodity on the client’s behalf in the same sitting. The client then walks away with the desired cash and agrees to repay a larger amount later. Thus, the transaction becomes merely a formality, lacking the genuine spirit of real trade found in normal buying and selling contracts. This practice increases debt without supporting real production, contributes to economic inflation, and hampers the activation of key productive sectors in the economy.
Third: Structured Tawarruq contradicts the philosophy of Islamic finance, which is based on diversity of contracts and their applicability to various real economic activities. When a financier relies heavily on structured Tawarruq, they tend to neglect other legitimate Sharia - compliant contracts, such as Istisna‘ (manufacturing contracts), Mudarabah (profit-sharing partnerships), and others. As a result, Islamic financial institutions may begin to resemble conventional banks that rely solely on interest-based lending, thus defeating the purpose of establishing an Islamic financial system.
Fourth: The suspicion of ‘Inah (the triple sale): this arises from the financial institution’s undertaking to sell the commodity, which is considered a form of Riba circumvention or manipulation.
The Board of Iftaa’, Research and Islamic Studies, in its resolution No. (
307), issued a ruling that the bank Tawarruq (personal financing) is religiously prohibited (haram). It stated that “dealing with organized bank Tawarruq is forbidden in Sharia to close the door to the pretext of circumventing Riba, and to prevent the distinction between Islamic banks and conventional banks from becoming merely a formal difference...”
In conclusion, if the described transaction meets the characteristics of organized Tawarruq, then dealing with it is prohibited. However, if those characteristics are absent and it falls under individual Tawarruq, it is permissible when there is a genuine need. And Allah The Almighty Knows Best.
