Tawarruq

What is Tawarruq?

• a contract in which one party brings capital and the other personal effort. The proportionate share in profit is determined by mutual agreement.

• A contract that consists of two sale and purchase contracts. The first involves the sale of an asset by a seller to purchaser on a deferred basis. Subsequently, the purchaser of the first sale will sell the same asset to a third party on a cash and spot basis.

• a contract of lending money by a lender to a borrower where the latter is bound to repay an equivalent replacement amount to the lender.

• a contract of partnership between two parties, where one partner gradually buys the whole parts of the property.

Which of these are Components of Tawarruq?

• Offer & Acceptance

• Rental

• Contracting Parties

• Asset

• Duration

What are the characteristics of the “Offer & Acceptance” component of Tawarruq?

• a.     May only be expressed in writing

• May be expressed orally or in writing

• The Sale & Purchase contract must follow the correct sequence

• The Sale & Purchase contact’s sequence may change if agreed beforehand

What is Ibra’ in Tawarruq

• Imposition of late payment charges

• An agent appointed on behalf to perform the Tawarruq contract

• Rebate on part or the entire outstanding selling price of the sale and purchase contract

Below are the arrangement of Tawarruq with other contracts, except

• Tawarruq + Assurance

• Tawarruq + Ta’width and Gharamah

• Tawarruq + Bai’ Bithaman Ajil

Tawarruq contract will dissolve under the following circumstance:

• Purchaser goes into another contract with the same seller

• Purchaser exercise the defect option to terminate the contract

• Seller goes into another contract with a different seller

Below are the implications of shariah non-compliance risk, except:

• Reputational risk

• Increase customer’s confidence

• Possibility of contract void

• Financial loss

Which of these following are true about Tawarruq asset?

• Owned by the seller

• Valuable but could not be delivered

• Deliverable

Cost and Profit must be disclosed under Murabahah contract.

• True

• False

Sales and purchase contracts in Tawarruq not necessarily required to follow any sequence, as long as the contract been executed.

• True

• False