Tawarruq

What is tawarruq?

• Consists of two sale and purchase contracts in which the first involves the sale of an asset by a seller to a purchaser on a deferred basis.

• Referred to as cost-plus financing, is an Islamic financing structure in which the seller and buyer agree to the cost and markup of an asset.

• A transaction in which the buyer does not know the price paid by the seller to create or obtain the good or service being offered.

• A sale and purchase transaction of an asset to be paid on later date (deferred payment) based on a price, which include a profit margin agreed to by both contracting parties.

The following describes key principles for sound management and operationalization of tawarruq EXCEPT?

• The IFI shall establish a comprehensive governance and oversight framework to ensure that a tawarruq is conducted based on sound practices and complies with Shariah

• The IFI shall provide adequate disclosure and transparency to facilitate stakeholders’ understanding and assessment of a tawarruq.

• The IFI shall undertake a tawarruq in a fair and transparent manner in line with Shariah to protect stakeholder’s interest

• Promote end-to-end compliance with Shariah requirements which include adherence to sound Islamic banking practices and safeguarding customers’ interest.

When does this policy document comes into effect?

• 28 December 2019

• 28 December 2018

• 27 July 2019

• 27 July 2018

What are the two distinctive parts contained in this policy document?

• Shariah requirements

• Operational requirements

• Shariah requirements and operational requirements

• None of the above

Which of the following assets should NOT be traded in Tawarruq?

• Gold, silver and currencies

• Assets to be constructed or under construction

• Assets which are debt in nature

• All of the above

In the occurrence of defect option (khiyar al-`ayb), the purchaser has the right to?

• terminate the sale and purchase contract

• continue with mutually agreed variation of the terms of the sale and purchase contract as a result of the defect discovered

• continue with the sale and purchase contract as it is

• All of the above

When is the price used for each sale and purchase contract determined?

• Before entering into each of the respective sale and contract

• After entering into each of the respective sale and contract

• At the time of entering into each of the respective sale and purchase contract.

• After delivery of asset

The _________ in each sale and purchase contract in the tawarruq shall have the right to take delivery of the asset.

• seller

• purchaser

• third party

Which of the following is included in the establishment of risk management policies by the IFIs?

I Appropriate pricing methodology of the assets

II Segregation of roles and duties

III Monitoring and reporting mechanism

IV Establish risk exposure limits in line with the IFI’s risk appetite

• I and II

• I and III

• I, II and IV

• All of the above

The following are potential Tawarruq risks that the IFIs are exposed to, EXCEPT:

• Market risk

• Operational risk

• Default risk

• Credit risk