Tawarruq

Definition

Tawarruq (Arabic: تورق, literally 'acquisition of silver/cash') is a Shariah-compliant cash-liquidity mechanism involving a three-step commodity transaction: (1) a customer buys a commodity on deferred payment (Murabaha) from a bank; (2) the customer immediately sells the same commodity to a third party for spot cash, obtaining liquidity. Organised Tawarruq (also known as Commodity Murabaha) is institutionalised through commodity exchanges — primarily the London Metal Exchange (LME) or Bursa Suq Al-Sila in Malaysia — where standardised metals (aluminium, palladium) serve as the transacted commodity. Tawarruq is widely used for: personal finance, working capital facilities, syndicated Islamic lending, interbank placements, and sovereign Sukuk. It has faced criticism from some Shariah scholars who argue it replicates the economic effect of interest-based lending. AAOIFI Shariah Standard No. 30 permits organised Tawarruq with conditions; AAOIFI's Islamic Fiqh Academy issued a resolution restricting its use in 2009. Despite controversy, it remains one of the most widely used liquidity management tools in Islamic banking.

Prerequisite Concepts

Primary Sources & Standards

• standardAAOIFI Shariah Standard No. 30 — Monetisation (Tawarruq)
• wikipediaTawarruq — Wikipedia
• referenceLondon Metal Exchange — Commodity Murabaha Reference Platform