Vol. 26. No.

1 April Issue (2022)

AN OVERVIEW OF THE WIDE EXTENT OF TAWARRUQ IMPLEMENTATION IN

MALAYSIA ISLAMIC BANKING PRODUCTS

Nurjannah Hasmadi & Abdulrahman Alosmanii

i (Corresponding author). Master Student, Kuliyyah of Islamic Revealed Knowledge and Human
Sciences, International Islamic University Malaysia (IIUM). nurjannahhasmad@gmail.com
ii Lecturer, Human Sciences Department, International Islamic University Malaysia (IIUM).
abdulrahman@iium.edu.my

Abstract The Shariah financing concept tawarruq is dominating Islamic banking products
nowadays. Tawarruq concept is underpinning various Islamic finance and
banking products and growing its portfolio proportion year by year in Malaysia
Islamic banking and finance industry. This paper aims to give an overview of the
wide extent of tawarruq implementation in Malaysian Islamic banking products.
This study employs qualitative approach using library research method by
examining and analyzing secondary data collected from multiple sources such as
journal articles, policy documents, books, resolutions, standards, product
disclosure sheets and reports. Results of this paper suggest that steps taken by
official bodies like issuing a much lenient Shariah standards on tawarruq
application than other international standard setting bodies like AAOIFI and
Council of International Islamic Fiqh Academy by Bank Negara Malaysia and
establishment of Bursa Suq As-Sila to facilitate tawarruq implementation by
Bursa Malaysia is much aiding the application of tawarruq concept in Malaysia
notwithstanding some issues causing controversies regarding its application.
The study also revealed that Islamic banking products such as Islamic personal
financing, Islamic home financing, Islamic credit cards and Islamic deposit
account are applying tawarruq concept in a wider term in replacing the
application of previous Shariah concepts. It is concluded that tawarruq is
gaining larger popularity among Islamic finance and banking industry players,
however, innovative alterations need to be applied on the current practice of
tawarruq to mitigate critiques surrounding it.

Keywords: Financing,Tawarruq, Islamic, Banking, Products.

INTRODUCTION
Islamic financial institutions are distinct from their conventional counterparts in terms of
uninvolvement with interest, promoting risk sharing and holding on to the principle of
profit and loss through trading (Adznan, 2018). In abstaining themselves from being
involved in interest (riba), Islamic banks needed to ensure both their asset or liabilities
are free from interest (Sobol & Dopierla, 2019). Since 1970’s, Islamic finance has been
developing rapidly especially in Muslim countries (Sobol & Dopierla, 2019). Malaysia
belongs to those countries where two financial systems co-exist: the conventional one and
the Islamic one (Sobol & Dopierla, 2019). In 1983, the establishment of Bank Islam
Malaysia Berhad in marks the cradle of Islamic banking in Malaysia, followed by Bank
Muamalah Malaysia Berhad in 1999 (Bahari & Baharudin, 2014).
In the beginning of Islamic banking and finance practice in Malaysia around 1990s,
bay al-inah is very popular in Malaysian Islamic financing schemes (Asni, 2019). However,
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considering the strong arguments about the controversial existence of riba elements in
bay al-inah, Islamic financial institutions introduced the tawarruq concept as an
alternative (Bahari & Baharudin, 2014; Shafie et al., 2020). Most of the current Islamic
derivative’s products applied by Islamic financial institutions nowadays are
predominantly based on tawarruq or also known as commodity murabahah (Abd Rahman,
2016). Financing by tawarruq grew over 34% to sum up over 22.4% out of overall
outstanding Shariah-compliant financing in 2016 (Bank Negara Malaysia, 2016). Bursa
Suq Al-Sila commodity trading operation had largely contributed in this growth by
reducing costs and risks in tawarruq-based transactions (Bank Negara Malaysia, 2016). By
the end of 2019, tawarruq lead Malaysia’s Islamic banking industry financing portfolio’s
proportion, accounting for 46 percent of overall financing (Bank Negara Malaysia, 2020).
This paper focuses on giving an overview of the wide extent of tawarruq
implementation in the context of Islamic banking products. The paper will first explain the
concept of tawarruq, scholars’ view on tawarruq and issues pertaining the concept of
currently applied tawarruq. After that, this paper will proceed with discussion on
implementation of tawarruq in Malaysia Islamic banking and financing sector and
subsequently its application in Malaysia Islamic banking products.

METHODOLOGY
This paper employs qualitative approach by using library research method. Data related to
the study are secondary data collected from multiple sources such as journal articles,
policy documents, books, resolutions, standards, product disclosure sheets and reports.
These data are subsequently examined and analyzed to obtain the results. In obtaining the
results, this paper analyzes concept of tawarruq in theory including, scholars’ view
regarding the concept and issues pertaining the concept. After that, this paper examines
how the concept is applied in various Islamic banking products in the context of Malaysia.

RESULTS
Concept Of Tawarruq
Tawarruq is an act of buying an asset for a delayed price finalized through either
musawamah (bargaining) or murabahah (mark-up sale) and selling it to a third party for a
spot price so as to obtain cash (AAOIFI, 2015). In the financing world, tawarruq is also
known as commodity murabahah (Bahari & Baharudin, 2014). The transaction is known
as tawarruq (coin/cash) because the buyer bought the commodity on credit without the
intention of using or profiting from it, but instead to sell it for cash (Bank Negara Malaysia,
2010).
There are two types of tawarruq: tawarruq fardi (classical tawarruq) and tawarruq
munazzam (organised tawarruq). Tawarruq fardi is the one that is explained previously. In
tawarruq munazzam, the seller in the first transaction, usually the bank, will become the
customer’s agent to sell the commodity to a third-party buyer (Omar, 2018). The
distinction between classical and organized tawarruq is the appointment of the bank as an
agent to sell back the asset in the modern application via a representative contract (N.
Mohamad & Ab Rahman, 2014). On the other hand, tawarruq ‘aksi or reverse tawarruq is
the same as organised tawarruq except that the financial institution will act as the
customer and the client will act as the beneficiary instead (Omar, 2018).
Classical scholars, except Hanbali scholars, haven’t coined the term tawarruq as it
is in their books, instead, the matter is mentioned under discussion of bay al-inah (Kuwait,
1983). Hanbali scholars like al-Bahuti mentioned the term tawarruq in his book Kasysyaf
al-Qina’ (1983), a commetary on the book Al-Iqna’ by Al-Muqaddasi, stating that:
)ِ‫ص َعلَْيه‬ ِ ِ ٍ ِِ ِ ٍ
َّ َ‫ك ن‬ َ ‫س )بِ َذ ل‬ َ ‫اج )إنْ َسان) َإَل نَ ْقد فَا ْش َََتى َما يُ َسا ِوي مائَةً ِبائَة َوَخَْس‬
َ ْ‫ فَََل ََب‬،‫ني‬ َ َ‫احت‬
ْ ‫} َولَ ْو‬
.})‫يع ِِبَا‬ ِ ِ ‫َن م ْش ََِت‬ ِ َّ ‫وِهي )أَي ه ِذهِ الْمسأَلَةُ تُس َّمى) مسأَلَةَ التَّوُّرِق ) ِمن الْوِرِق وهو الْ ِف‬
ُ ِ‫ي السلْ َعة يَب‬ َ ُ َّ ‫ضةُ؛ ِل‬ ََُ َ ْ َ َْ َ َْ َ ْ َ َ

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“If he (a person) is in need of cash and he buys a commodity priced one hundred with the
price of one hundred and fifty, it is permissible (for him to do that), and this (matter is called)
at-tawaruq, (derived from the word al-wariq which means silver, because the buyer of the
commodity utilizes the commodity by selling it).”

In the above paragraph, Al-Bahuti elaborated Al-Muqaddasi’s words on the

situation where a person who needs cash on spot purchasing a commodity with a higher
price just to sell the commodity in order to fulfil his need of cash; an example of tawarruq.
He further stated that this practice is permissible, coining the term ‘tawarruq’ for such
practice.
One point worth to ponder in discussing the matter of tawarruq is the similarity
and difference between tawarruq and bay al-inah considering that classical scholars used
to discuss tawarruq under chapters of bay al-inah. According to An-Nawawi, bay al-inah is
a transaction where a person sells a product to a customer with a deferred payment and
deliver the product to the customer. The same seller then buys back the same product
from the customer, in cash, with a lower price, before the customer settles the payment for
the product (An-Nawawi, 1991). In this transaction, the customer gets immediate cash,
whereas the seller benefits from the difference between the two prices. Thus, it can be
concluded that the similarities and differences between tawarruq and bay al-inah are as
follow:

Transaction Bay Al-Inah Tawarruq

Similarities The purchaser in the first sale and purchase transaction does not intend
to benefit the commodity by using it, instead, by selling it.
The purchaser in the first sale and purchase transaction is in need of
cash.
The first sale and purchase transaction is in deferred mode.
The second sale and purchase transaction is in spot cash.
The same commodity is used in both first and second sale and purchase
transaction.
Differences The seller in the first sale and The seller in the first sale and
purchase transaction is the purchase transaction is not the
purchaser in the second sale and purchaser in the second sale and
purchase transaction. purchase transaction.
The commodity will return to The commodity will not return to the
the first sale and purchase first sale and purchase transaction
transaction seller in the end of seller in the end of the process,
the process. instead, it will be owned by the
purchaser in the second sale and
purchase transaction.
The whole process involves 2 The whole process involves 3 parties.
parties.
Table 1: Similarities And Differences Between Tawarruq And Bay Al-Inah

Scholars’ View On Tawarruq Concept

In further discussing the application of tawarruq in today’s banking sector, it is important
to know as how the classical scholars view tawarruq concept. Maliki school of thought
oppose the practice of bay al-inah due to the seller in first sell and purchase transaction
being the same purchaser in the second sale and purchase transaction. In listing five
conditions where deferred transaction is impermissible, Al-Qurrafi (2010) stated among
the situation is:
{‫}أَ ْن يَ ُكو َن الْ ُم ْش ََِتي ََثنِيًا ُه َو الْبَائِ ُع أ َْوَل‬

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“When the purchaser in the second sell and purchase transaction is the same seller itself in
the first sell and purchase transaction”

Seeing that the essence of their ban is the same person being the seller in the first
sell and purchase transaction and purchaser in the second sell and purchase transaction, it
then can be implied if these two parties are different persons as in tawarruq, the
impermissibility is hence lifted.
On the other hand, Hanafi school of thought generally impermits bay al-inah and
permits tawarruq. As-Sarkhasi (As-Sarkhasi, 1993) mentioned the impermissibility of bay
al-inah in his book Al-Mabsut:
ٍ‫ض بِ َع َشرة‬ ِِ ِ ِ ِ ِ ِ ِ
َ َ‫{ َوإََِّّنَا أ ََر َاد ِبََذا إثْب‬
َ ُ ‫ات َك َر َاهة الْعينَة َوُه َو أَ ْن يَب َيعهُ َما يُ َسا ِوي َع َشَرةً ِبَ ْم َسةَ َع َشَر ليَب َيعهُ الْ ُم ْستَ ْق ِر‬
ِ ‫ص َل لِْل ُم ْق ِر‬
}‫ض ِزََي َدة‬ ُ ‫فَيَ ْح‬
“It is meant by this, is the confirmation on impermissibility of bay al-inah, where a debtor
sells a commodity priced 10 dirhams with the price of 15 dirhams to his indebtor, so that the
indebtor will sell it back to him (the debtor) with the price of 10 dirhams and hence the
debtor will benefit from the price difference”

Ibn Al-Humam, on the other hand, when discussing the impermissibility of bay al-
inah where the same commodity in the end returned to the original seller, mentioned a
situation resembling tawarruq in his book Fathu Al-Qadir (Ibn Al-Humam, n.d.):
ٍ َّ ٍ ِ ِ ُّ ‫{أَ ْن يبِيع ما يسا ِوي ع َشرةً ِِبَمسةَ ع َشر َإَل أَج ٍل فَي ْش ََِتيه الْم ْديو ُن ويبِيعه ِِف‬
َ ْ‫ َوَل ََب‬،‫السوق ب َع َشَرة َحالة‬
‫س‬ ُ َ َ َ ُ َ َُ َ َ َ َ َْ َ َ َُ َ َ َ
}‫ِِف َه َذا‬
“For a debtor to sell a commodity priced 10 dirhams with 15 dirhams with deferred payment
and the indebted buys the commodity with the said price of 15 dirhams, and after that the
indebted sells it in the market with the price of 10 dirhams in spot cash. There is no objection
in this practice”

Shafi’e school of thought ruled out the permissibility of bay al-inah, as stated by Ar-
Rafi‘e:
}‫{وليس من املنَاهي بيع العِْي نَة‬
“There is no opposing to bay al-inah”
َ
Seeing that the madhhab even permits bay al-inah which only involves two party, it
is even more logic that they permit tawarruq that involves different purchaser in the
second sale and purchase contract other than the seller in the first one. Furthermore, Ar-
Rafi’e, in discussing the matter of bay al-inah, mentioned a situation if the commodity is
sold with a lower price to other than the original seller:
}‫ فيجوز من ابئعها‬،‫{ لنا أنه مثن جيوز بيع السلعة به من غري ابئعها‬
“For us, the school of As-Syafi’e, it is a permissible price (a lower price for the second spot
basis transaction) for a commodity to be sold to other than the original seller, hence it is also
permissible to be sold to the original seller too”

The situation illustrated here, where the commodity is sold back to other than the
original seller, even though not the core essence in his discussion in the context of this
paragraph, is resembling the tawarruq transaction where a person sold what he had
bought to someone other than the seller with a lower price on a spot basis.
In Hanbali school of thoughts, the preferred opinion is permissibility of tawarruq
as stated by Al-Mardawi;

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ِ‫ وعلَيه‬.‫ وهو الْم ْذهب‬.ِ‫ص علَيه‬ ِ ٍ ِِ ِ ٍ

ْ َ َ ُ َ َ َ ُ َ ْ َ َّ ُ‫ ن‬.‫س‬ َ ‫ فَا ْش َََتى َما يُ َسا ِوي مائَةً ِبائَة َوَخَْس‬،‫اج َإَل نَ ْقد‬
َ ْ‫ فَََل ََب‬.‫ني‬ ْ ‫{لَ ْو‬
َ َ‫احت‬
}‫ َوِه َي َم ْسأَلَةُ الت ََّوُّرِق‬.‫اب‬
ُ ‫َص َح‬
ْ ‫ْاِل‬
“If a person is in need of cash and he buys a commodity priced one hundred with the price of
one hundred and fifty, it is permissible. This is what is agreed upon and it is the opinion of the
madhhab. This is the opinion hold onto by the scholars, and it is called at-tawarruq”

Even though so, there is one opinion transmitted from Imam Ahmad Ibn Hanbal
mentioning the karahah of the practice. This is as mentioned by Ibn Muflih (2003) when
mentioning the ruling of tawarruq:
}ُ‫يُكَْره‬: ُ‫{ َو َعنْه‬
“It is transmitted from Ahmad bin Hanbal that the practice is not favored (makruh)”

In conclusion, almost all of classical scholars permit the practice of tawarruq in it’s
traditional form (tawarruq fardi).

Issues On Current Practice Of Tawarruq

Even though tawarruq is permitted by majority scholars, the current practice of tawarruq
in Islamic financial institutions nowadays gathered a largely debatable phenomenon. In
fact, renowned Malaysian Islamic finance figure, Zaharuddin Abd Rahman (2016) even
labelled tawarruq as the Achilles heel of the Shariah-compliant derivatives products. This
is because the tawarruq that is applied in Islamic banks today is not the tawarruq in its
classical form i.e tawarruq fardi that is deemed permissible by majority scholars as it does
not interest modern Islamic banks (Yusoff et al., 2016).
Instead, Islamic banks tend to implement tawarruq munazzam or organized
tawarruq, in which the bank that act as seller in the first transaction, will become the
client’s agent to sell the commodity to another buyer (Omar, 2018; Yusoff et al., 2016).
This practice brings to surface numerous issues that lead to the controversies surrounding
the operation of organized tawarruq, among them are i.e usury and legal stratagem, dual
agency and pre-arrangement.
Bilal and Mydin Meera (2015) argued that most contemporary tawarruq practice
or tawarruq munazzam are indeed stratagem to circumvent interest taking. This can be
seen from the operation of the tawarruq munazzam or also known as commodity
murabahah by Islamic banks via the following steps (BMB Islamic, 2016):
1. Customer who is in need of cash, undertakes to purchase a commodity from the
bank.
2. Bank subsequently purchase the commodity from a supplier (Broker A) in cash
and sells it to the customer at cost plus profit on deferred payment basis.
3. Upon completion of the purchase, bank will act on customer’s behalf as an agent to
sell the commodity at a lower price to a buyer (Broker B) for immediate cash.
4. Towards the end, the customer obtains cash from the commodity market (from
step 3) with an obligation to pay the debt to the bank (from step 2).

As can be seen in the steps above, the final result of this process is obtaining lower
amount cash money by paying higher amount deferred money. Majority scholars prohibit
the controversial organized tawarruq mainly due to the issue of usury and legal stratagem,
i.e., gaining money for money, where the essence of the prohibition is similarly ruled for
bay al-inah (E. F. Ahmad et al., 2017; N. Mohamad & Ab Rahman, 2014, p. 491). The real
intention of the contract, as seen above, is to create debt obligation, hence the underlying
commodity traded is rather a route to mobilize money with none of the contracting parties
have the intention to actually acquire or hold the commodity transacted, notwithstanding

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the option given to customer to take physical delivery of such commodity (Shafie et al.,
2020).
Another issue arises around the practice of tawarruq in Islamic banks is the
implementation of dual agency. In current practice of Islamic banking in Malaysia, the
Islamic bank doesn’t only act as an agent to sell the commodity on behalf of the customer
to a broker, but a dual agent (Zulkepli & Mohamad, 2020). In simple words, dual agency or
known by the scholars as bay al-wakeel linafsih is a situation where the goods are sold by
the agent to himself (Shaharuddin et al., 2020). The way dual agency happens in deposit-
based tawarruq products that also employs reverse tawarruq, for example, is as follow
(Shaharuddin et al., 2020):
1. Customer approach Islamic bank to deposit their money based on tawarruq
principle. Bank agrees and act as an agent for customer to purchase a commodity
on his behalf.
2. Bank will then act an agent to sell the commodity to itself on behalf of the
customer for a deferred price.
3. To complete the transaction, the bank then sell the commodity to another broker
to obtain cash.

In this situation, dual agency happened in step 2 where the bank act as an agent to
sell the commodity to itself. Meanwhile, dual agency happens in financing-based tawarruq
product as follow (Shaharuddin et al., 2020):
1. Customer approach Islamic bank for financing product based on tawarruq concept.
Bank agrees and purchase a commodity from a broker.
2. Bank sells the commodity to itself as an agent for the customer at a deferred price.
3. On behalf of the customer, bank sells the commodity to another broker on a spot
basis.

In this situation, dual agency happened in step 2 where the bank act as an agent on
behalf of the customer to sell the commodity to itself. Majority scholars of madhhab Maliki,
Hanafi, Shafi’e and Hanbali disallow dual agency as it may cause conflict of interest
(Kuwait, 1983). Notwithstanding Bank Negara Malaysia (BNM) in their tawarruq policy
document had allowed tawarruq transaction based on dual agency, this practice is
however in contrast with AAOIFI Shariah Standard 23 that prohibits an agent to conduct
deals with his own self, his child who is still under his guardianship or with his partner in
the same contract (AAOIFI, 2015; Bank Negara Malaysia, 2018b).
Other than that, the issue of pre-arrangement also bring notable dispute on the
practice of tawarruq. Pre-arrangement is the main feature that differentiates modern
organized tawarruq and classical tawarruq (BMB Islamic, 2016). In deposit based
tawarruq products, for example, pre-arrangement exists when the bank already arranged
the purchaser for the commodity and profit margin in the application stage by the
customer (Zulkepli & Mohamad, 2019). Such pre-arrangement may lead to other shariah
non-compliant incidences in executing tawarruq.
According to Ali and Hassan (2020), two most frequent shariah non-compliant
events occurring in Islamic banks in executing tawarruq-based products is improper
sequence of sale contract, i.e the asset is sold to the customer before the bank purchases it
from a broker and advance disbursement of the facility before complete execution of the
tawarruq transaction. These incidences will not happen if not for pre-arrangement done
by the bank even in the application stage by the customer. The issue of pre-arrangement
that exists in organized tawarruq made the concept somewhat similar to bay al-inah
structure (BMB Islamic, 2011).
From the perspective of the Islamic financial institutions, pre-arrangement is vital
to ensure fixed profit rate that will attract customers and subsequently enhance their trust
in Islamic financial institutions (Zulkepli & Mohamad, 2019). However, because of the

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intention to obtain cash prevails over the structure of tawarruq, the indictment of back
door riba exists through this practice of pre-arrangement (BMB Islamic, 2016).
Despite the controversies surrounding organized tawarruq, it is widely applied
due to its ease of execution and flexibility in acquiring liquidity, thus pacifying the needs of
Islamic banks that are always dragged into a rat race against conventional banks to offer
more competitive products and services (BMB Islamic, 2016; Kahf & Mohomed, 2017).
However, in the long run, emphasizing organized tawarruq carries a handful of
disadvantages. Continuity in practicing organized tawarruq will damage the reputation of
Islamic banking industry due to due to massive critics and disputes among the prominent
scholars (Shafie et al., 2020).
Dependency on tawarruq munazzam practice also can be a counterattack to
Islamic financial institutions for not being able to create more innovative products but
instead replicating the conventional counterparts albeit some corners here and there
(Shafie et al., 2020). On the other hand, from the perspective of society wealth
improvement or generating economic substance, tawarruq munazzam is bringing more
harm than benefit as it promotes redistributions of wealth in favour of the creditors,
which is clearly parallel to traditional loan (Shafie et al., 2020).

Implementation Of Tawarruq In Malaysia Islamic Banking And Financing Sector

In 2005, BNM resolved that financing and deposit products based on the concept of
tawarruq is permissible (Bank Negara Malaysia, 2010). In the following year, the bank
issued permissibility of sukuk ijarah and Shariah compliant shares application as the
underlying asset in tawarruq transaction to manage liquidity in Islamic financial system
(Bank Negara Malaysia, 2010). The BNM officially issued a policy document regarding
tawarruq in 2015. Another issue of tawarruq policy document was issued by the bank in
2018, superseding the former issue.
Some restrictions were embedded in this policy document in the operational
structure of tawarruq. Among those restrictions are the seller in the first sale and
purchase contract shall not be the purchaser in the second sale and purchase contract in
the same tawarruq (Bank Negara Malaysia, 2018b). Regarding the asset to be used as the
subject matter of a tawarruq, it shall be the seller’s owned existing tangible or intangible
Shariah recognized asset in terms of being valuable, identifiable, and deliverable (Bank
Negara Malaysia, 2018b). In this policy document, the bank also issued that dual agency
may be implemented in tawarruq, taking form in one of the following (Bank Negara
Malaysia, 2018b):
(a) an action of one of the contracting parties who acts as an agent to purchase an
asset on behalf of the other contracting party, and subsequently acts as an agent to
sell the asset on behalf of the same contracting party to himself; or
(b) an action of one of the contracting parties who acts as an agent to purchase an
asset from himself on behalf of the other contracting parties, and subsequently
acts as an agent to sell the asset on behalf of the same contracting party to a third
party.

In this matter, BNM seems to be more lenient in issuing permissibility of tawarruq

to be practiced by Islamic banks in Malaysia compared to international bodies like AAOIFI
and Council of International Islamic Fiqh Academy. The dual agency mater, for example,
contradicts with AAOIFI Shariah Standard No. 23 that that prohibits an agent to conduct
deals with his own self, his child who is still under his guardianship or with his partner in
the same contract (AAOIFI, 2015).
Other than that, compared to other bodies, it is fair to say that BNM is lenient in
ruling the permissibility of organized tawarruq. This can be seen in it’s proposed
mechanism of tawarruq-based financing product, stating that “The customer appoints the
Islamic financial institution as his agent to sell the metal commodity to metal trader B on
cash basis in the metal commodity market (Bank Negara Malaysia, 2010).” This clearly

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contradicts AAOIFI, in their Shariah Standard No. 30 clause 4/7 (AAOIFI, 2015), that states
“the client shall not delegate the Institution or its agent to sell, on his behalf, a commodity
that he purchased from the same Institution and, similarly, the Institution shall not accept
such delegation”. Notwithstanding, the clause added an exception; “If, however, the
regulations do not permit the client to sell the commodity except through the same
Institution, he may delegate the Institution to do so after he, actually or constructively,
receives the commodity.”
Further, clause 4/8 states (AAOIFI, 2015) “the Institution should not arrange
proxy of a third party to sell, on behalf of the client, the commodity that the client
purchased from the Institution.” In other words, AAOIFI originally does not favour the
practice of bank being an agent on the behalf of the customer to sell a commodity that the
customer bought from the bank itself. Considering that the main distinction between
tawarruq fardi and tawarruq munazzam is the appointment of the bank as an agent on
behalf of the customer to sell back the asset as explained previously, hence, the author is
also of the view that AAOIFI, subsequently, does not favor implementation tawarruq
munazzam.
Nevertheless, the Council of International Islamic Fiqh Academy imposed a stricter
decision regarding tawarruq. Even though the academy permits tawarruq fardi, they are
consistent in their view of tawarruq munazzam’s impermissibility in their 2003’s 17th
meeting and 2009’s 19th meeting without any exceptional clause (Majma’ Al-Fiqhi Al-
Islami Ad-Duwali, 2020).
In Malaysia, the operation of banking and financing practices using tawarruq as an
underlying concept is highly facilitated by Bursa Suq Al-Sila’ (BSAS). BSAS is a commodity
platform specifically dedicated to facilitating Islamic liquidity management and financing
by Islamic banks (BMB Islamic, 2016). It is an innovative initiative to enhance Islamic
finance industry while embracing Shariah principles by integrating the global Islamic
financial and capital markets together with the commodity market through one single
engine (Michael, 2021). In 2008, BNM’s Shariah Advisory resolved the permissibility of
proposed operational structure of BSAS which was formerly known as Commodity
Murabahah House (Bank Negara Malaysia, 2010).
In the next year, BSAS was officially launched on 17 August 2009, established from
the collaboration of Bank Negara Malaysia, Securities Commission Malaysia, Bursa
Malaysia and Islamic financial industry players (BMB Islamic, 2016). BSAS operations are
managed by Bursa Malaysia Islamic Services Sdn. Bhd (BMIS), a wholly owned subsidiary
of Bursa Malaysia (Othman, 2016). An illustration of how BSAS operates in facilitating
tawarruq based financial and banking practices is as follow (Bursa Malaysia, 2014):
1. Commodity suppliers in BSAS sell commodity directly to Islamic Bank A on cash
basis.
• Ownership of commodity is transferred to Islamic Bank A.
• BSAS ensures delivery of commodity to Islamic Bank A upon request.
• e-Certificate is generated by system detailing trade information to verify the
transaction.
2. Islamic Bank A sells commodity to its client or Islamic Bank B at a marked-up
price (murabahah) on deferred payment basis.
• Ownership of commodity is transferred to client or Islamic Bank B and an e-
certificate is generated.
3. Client or Islamic Bank B sells the commodity to Bursa Malaysia Islamic Service
(BMIS) on cash basis.
• Ownership of commodity is transferred to BMIS and an e-certificate is
generated.
4. BMIS offers to sell and suppliers bid to purchase. The sell and purchase are
matched on random basis.
• Ownership of commodity is transferred to the supplier once matching is done.

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During the early introductory phase of BSAS, the only commodity available to
facilitate transactions is crude palm oil (CPO) (Michael, 2021). There are up to 22 types of
commodities that can be offered for trade in BSAS including aluminium, coal, plastic resin,
crude palm oil and rubber to name a few (Bursa Malaysia, 2014). Until now, there are
seven type of commodities available for trade under BSAS platform; CPO, refined, bleached
and deodorised (RBD) palm olein, softwood timber, hardwood timber, plastic resin A,
plastic resin B and plastic resin C (Michael, 2021).
Commodities traded must met some general requirements set up by BMIS; such as
definite existence, unencumbered commodity, specifically located, deliverable and have
definite specification (Bursa Malaysia, 2014). BSAS accepts the use of up to 22 currencies
including US Dollar, Malaysian Ringgit, Kuwaiti Dinar and Saudi Arabian Riyal (Bursa
Malaysia, 2014). In 2018, BSAS Shariah committee approved the improvement of
randomisation process of selling the commodity back to the market where the selection of
the commodity supplier automatically excludes selling back to the same original
commodity seller (Michael, 2021).
There are several factors contributing to the wide application of tawarruq in
Islamic banking products in Malaysia, be it from the industry player’s perspective or from
customers’ perspective. From Islamic financial institutions’ perspective, tawarruq is widely
used in the Islamic banking practices in Malaysia and has became a popular alternative
among IFIs as a product to replace the controversial bay al-inah based product (Shafie et
al., 2020). Muhammad et. al (2018), in their study, cited that the banks they interviewed
resorted to using tawarruq as an underlying contract in their products due to the
difficulties they faced in complying with the Shariah Standard in the policy document
issued by BNM of the previous contracts such as bay al-inah.
In bay al-inah, they face difficulties to comply with the inter-conditionality
restriction. Other than that, in terms of offering banking products familiar to the customer,
the concept has gained wide acceptance from IFIs due to the embedded characteristics in
the tawarruq concept which can offer various features similar to conventional products
(Ali & Hassan, 2016).
From the customers’ perspective, the acceptance of tawarruq concept, specifically
in deposit account product, may be contributed by it’s features that offer upfront fixed
return to depositors, it’s easy execution and bearing no risk of losing capital to depositors
as they are protected under the Malaysian Deposit Insurance Corporation guarantee
(Shafie et al., 2020). On the other hand, in order to cater to the demand of investors who
are familiar and inclined towards a fixed rate of return on investments, many Islamic banks
opt to use the tawarruq concept to achieve the purpose (BMB Islamic, 2011).

Tawarruq In Malaysia Islamic Banking Products

1. Personal Financing
According to Kahf (2015), personal financing concept in the practice of Islamic banks is to
provide cash to individual, corporations and government. Up until 2021, personal
financing in Malaysia Islamic banks reached a total of RM 58 million (Bank Negara
Malaysia, 2021c). Nik Abdullah (2014) and Ahmad (2014) agreed on the factors attitude
and religious obligations to be significantly influencing the intention to use Islamic
personal financing along with other factors. Ahmad (2014) further noted that the pricing
of Islamic personal financing was found to be an insignificant factor.
It is indeed important for Muslims in Malaysia to have an Islamic alternative for
personal loan. Study by Rosele (2017) shows that personal financing has become a
necessity (al-hajah) and also able to take place up to compulsion (al-darurah) level in
certain condition. Beginning with the concept of bay al-inah, its application has undergone
several strong critiques that have prompted the introduction of tawarruq (Abdul Rahman,
2014). Tawarruq personal financing is one of the most profitable Islamic finance products
to Islamic financial institutions (Thaidi et al., 2014). The tawarruq personal financing
modus operandi is as follow (Jamaludin, 2018):

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i. The customer and the Islamic financial institution enter into an arrangement
where the customer promises to buy a commodity or asset from the bank. The
customer at the same time appoints the bank as his agent to sell the said
commodity or asset.
ii. The bank buys a commodity or asset from Broker A on a spot basis.
iii. The bank sells the same commodity or asset to the customer on deferred basis at
cost plus profit.
iv. The bank, as an agent to the customer, sells the same commodity or asset to
Broker B on a spot basis.
v. The bank pays the customer the sale proceeds in a lump sum basis.
vi. The customer pays the bank the purchase price of the commodity or asset on a
deferred installment basis

Currently, almost all of Islamic banks licensed by Bank Negara Malaysia offer
personal financing product based on the concept of tawarruq as can be seen in the
following table:

Table 2: Islamic Concept Applied in Islamic Personal Financing Products by Malaysia

Islamic Banks
No Islamic Bank Islamic Concept Applied in
Islamic Personal Financing
1 Affin Islamic Bank Berhad Tawarruq
2 Al Rajhi Banking & Investment Corporation BBA
(Malaysia) Berhad
3 Alliance Islamic Bank Berhad Tawarruq
4 AmBank Islamic Berhad Tawarruq
5 Bank Islam Malaysia Berhad Tawarruq
6 Bank Muamalat Malaysia Berhad Tawarruq
7 CIMB Islamic Bank Berhad Tawarruq
8 Hong Leong Islamic Bank Berhad Tawarruq
9 HSBC Amanah Malaysia Berhad Tawarruq
10 Kuwait Finance House (Malaysia) Berhad Tawarruq
11 Maybank Islamic Berhad Tawarruq
12 MBSB Bank Berhad Tawarruq
13 OCBC Al-Amin Bank Berhad Not found
14 Public Islamic Bank Berhad Bay Al-Inah
15 RHB Islamic Bank Berhad Tawarruq
16 Standard Chartered Saadiq Berhad -
(Source: Respective banks’ product disclosure sheets and websites)

2. Home Financing
Purchasing a house is a big decision for many households, especially considering the high
prices of houses these days. Financial factor had become among the top factors that are
strongly associated with consumer decision making in purchasing residential property
surpassing the factor association of feature (Chong & Dastane, 2017). Notwithstanding
various housing policies implemented by the government, affordability of housing is still
an issue in Malaysia whereby the housing price keeps increasing and the effectiveness of
these affordable housing policy is inconclusive (Wong & Aralas, 2019). Up until 2021, total
impaired and non-performing home financing loans in commercial and Islamic banks in
Malaysia reached around RM 8 million, the second highest among loans of other purposes
(Bank Negara Malaysia, 2021).
Despite this fact, Muslim consumers are still observant in opting for Shariah-
compliant home financing products to purchase the property they intended as not to

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violate the religion’s principles. Sharaiya and Haswa (2019) pointed out that avoidance
from being involved in usury (riba) is the general motivation for Islamic banks’ clients to
opt for Islamic banking and finance products despite the risk of this option of being more
expensive and requiring more complicated documentations compared to their
conventional counterparts. In choosing financiers to fulfil their need to own a house,
operations carried out according to Shariah principles and maintaining information
privacy are the factors that led to Shariah-compliant banks having an excellent reputation
for garnering their clients' trust (S. Ismail et al., 2014). The study conducted by Bassir et. al
(2014) even reported that the religiosity factor even surpasses price and cost factor in the
rankings of factors determining Islamic home financing acceptance in Klang Valley.
Islamic home financing in Malaysia can be divided into two types, which is debt-
based such as bay bithaman ajil (BBA), istisna’, ijarah and tawarruq and equity-based such
as musharakah mutanaqisah (MM) (Ibrahim & Kamarudin, 2018). Previously, the concept
BBA is dominating Islamic home financing products offered by Islamic banks (Ibrahim &
Kamarudin, 2018). However, in banking practices, the application of BBA is actually a form
of bay al-inah (Sawari et al., 2018).
This is among one of the controversies surrounding BBA that led to the
implementation of tawarruq concept to replace BBA (Amin & Abdul Hamid, 2018). Amin
and Abdul Hamid (2018) further reported in their study that product attractiveness,
quality of maqasid compliance, financial recommendation, attitude and perceived
behavioural control are jointly related to the willingness to choose tawarruq home
financing. An illustration of how tawarruq is practiced by Islamic financial institutions in
Islamic home financing is as follow (Mahyudin & Che Seman, 2014; Md Dahlan, 2018; M. T.
Mohamad et al., 2018; Omar, 2018):
i. The customer identifies the property that he wishes to buy.
ii. By applying a home financing scheme based on tawarruq/ commodity murabahah,
the customer requested that the bank buy a commodity at a price that was
equivalent to the price of the property that he wished to purchase.
iii. The bank will buy the commodity from the commodity trader, in the case of
Malaysia, this will be done in the Bursa Suq As-Sil’ah (BSAS) at the price equivalent
to the property price. The commodity trader will transfer ownership of the
commodity to the bank, which will be accomplished through the use of a transfer
certificate to the bank.
iv. Bank will then sell the commodity to the customer at a mark-up price. The
customer will repay the markup price in monthly instalments to the bank until full
settlement.
v. The customer will appoint the bank as his agent giving the bank permission to
resell the commodity to a commodity trader with the price equivalent to the price
of the property. Payment received by the bank will be used by the customer to
finance the purchase of the property.

Currently, other than BBA and MM, more banks are implementing tawarruq for
their Islamic home financing products. This can be seen in the table below:

Table 3: Islamic Concept Applied in Islamic Home Financing Products by Malaysia Islamic
Banks
No Bank Islamic Concept Applied in
Islamic Home Financing
1 Affin Islamic Bank MM
2 Al Rajhi Bank Tawarruq
3 Alliance Islamic Bank BBA
4 AmIslamic Bank Tawarruq
5 MBSB Bank Tawarruq

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6 Bank Islam Tawarruq

7 Bank Muamalat Tawarruq
8 CIMB Islamic Bank Tawarruq
9 HSBC Amanah Malaysia MM
10 Hong Leong Islamic Bank Tawarruq
11 Kuwait Finance House (KFH) Ijarah Muntahiyah Bit-
Tamlik
Ijarah Mausufah fi Dzimmah
12 Maybank Islamic Tawarruq
13 OCBC Al-Amin Bank Ijarah Muntahiyah Bit-
Tamlik
14 Public Islamic Bank MM
15 RHB Islamic Bank MM
Tawarruq
16 Standard Chartered Saadiq MM
(Source: Respective banks’ product disclosure sheets and websites)

3. Credit Cards
Being the most widely used payment card in Malaysia, an average of 349 million credit
card transactions was made annually over the past decade (Bank Negara Malaysia, 2019).
According to AAOIFI, credit card is a mean of payment providing a revolving credit facility
within the credit limit and period determined by the issuer of the card (AAOIFI, 2015).
AmBank Malaysia Berhad was the first to introduce an Islamic credit card back in 1996,
followed by Bank Islam Malaysia Berhad in 2002 and subsequently Bank Simpanan
Nasional in 2006 that employs the concept of bay al-inah in their credit card products
(Bilal & Mydin Meera, 2015; Uddin et al., 2018). This is before a wider issuance by
Maybank Islamic, CIMB Bank, Bank Rakyat Islamic Bank and HSBC Amanah all in 2008
(Balarabe et al., 2020). Islamic concepts embodied in the application of credit cards
include bay al-inah, ujrah, murabahah, hiwalah and tawarruq (Uddin et al., 2018).
Although in initial stages of the Islamic credit cards in Malaysia, many were based
on the bay al-inah structure, over the past few years, it has evolved into the tawarruq-
based model and today, credit cards are increasingly being issued and modelled based on
tawarruq and ujrah (Kahf & Mohomed, 2016). Bank Negara Malaysia regulated in their
Credit Card-i policy document that credit cards issued based on the concept of tawarruq to
comply with the tawarruq policy document issued (Bank Negara Malaysia, 2019).
Tawarruq credit cards are competitive as long as their prices are not higher than
that of their conventional counterparts (Sillah, 2017). In their Shariah standards regarding
credit cards, AAOIFI stated that it is not permissible for an institution to issue credit cards
that provide an interest-bearing revolving credit facility, whereby the cardholder pays
interest for being allowed to pay off the debt in instalments (AAOIFI, 2015). Bank Negara
Malaysia further regulates some general conditions for credit cards issued based on
tawarruq concept:
(a) The issuer purchases an identified commodity from a commodity broker and
sells the commodity at an agreed selling price (cost plus profit) on a deferred basis
to a cardholder;
(b) The cardholder then sells the commodity to another commodity broker at cost
and on a spot basis through the issuer as an appointed agent;
(c) The proceeds from the sale of commodity shall constitute the cardholder’s
credit limit for the purpose of utilisation by the cardholder; and
(d) The issuer shall charge actual profit to the cardholder based on the utilisation
of the credit limit by the cardholder and must grant ibra’ (rebate) to the
cardholder on the unutilised portion.

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In terms of practice, Islamic banks used organized tawarruq in Islamic credit card
structure. The structure of the organized tawarruq contract comprises of three
transactions between the customer, the bank and the broker (Bank Islam Malaysia Berhad,
2021; Bilal & Mydin Meera, 2015):
a) In the first transaction, the bank will buy a commodity for a price from Broker A.
b) Immediately afterwards, the bank sells the commodity to the customer on
deferred payment at the bank’s sale price on murabahah basis (cost plus profit).
c) As the sale agent for the customer, the bank then sells the purchased commodity to
a commodity purchaser for a cash price at cost price.
d) Proceeds from the transaction will be credited for customer’s utilization in
customer’s credit card account (wadiah) maintained by the bank. The customer is
obliged to pay the amount due from the murabahah transaction as per the agreed
terms.

The application of tawarruq concept, however, is not really wide in Islamic credit
cards. Out of 16 Islamic banks licensed by Bank Negara Malaysia, only two of them
underpinning this concept in their Islamic credit card product. Other concepts are more
widely used such as are ujrah and qard. The summary of Islamic concepts apllied in
Islamic credit card products by Islamic banks can be seen in the table below:

Table 2: Islamic Concept Applied in Islamic Credit Card Products by Malaysia Islamic
Banks
No Islamic Bank Islamic Concept Applied in
Islamic Credit Card
1 Affin Islamic Bank Berhad Tawarruq
2 Al Rajhi Banking & Investment Corporation -
(Malaysia) Berhad
3 Alliance Islamic Bank Berhad -
4 AmBank Islamic Berhad Ujrah and Qard
5 Bank Islam Malaysia Berhad Tawarruq
6 Bank Muamalat Malaysia Berhad -
7 CIMB Islamic Bank Berhad Ujrah
8 Hong Leong Islamic Bank Berhad -
9 HSBC Amanah Malaysia Berhad Ujrah
10 Kuwait Finance House (Malaysia) Berhad -
11 Maybank Islamic Berhad Ujrah and Qard
12 MBSB Bank Berhad -
13 OCBC Al-Amin Bank Berhad -
14 Public Islamic Bank Berhad Ujrah
15 RHB Islamic Bank Berhad Ujrah
16 Standard Chartered Saadiq Berhad -
(Source: Respective banks’ product disclosure sheets and websites)

Deposit Account
The Islamic Financial Services Act 2013 (IFSA) distinguishes investment account from
Islamic deposit, where investment account is defined as the application of Shariah
contracts with non-principal guaranteed feature for the purpose of investment usually
governed by Shariah concepts of mudarabah, wakalah and musharakah while Islamic
deposit guaranteed the principal to be returned or repaid in full (Bank Negara Malaysia,
2013, 2017). Beginning on 1 July 2015, Islamic deposits and investment accounts are
required to be designated separately (Bank Negara Malaysia, 2018a).
Deposits can be defined as amounts owed to creditors which are not negotiable in
the sense that there are restrictions on the transfer of their legal ownership and thus not

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marketable (Sobol & Dopierla, 2019). Deposits are considered to be one of the most
important sources of funding for both conventional and Islamic banks (Maswadeh, 2020;
Sobol & Dopierla, 2019). As a financial intermediary, the main sources of funds for Islamic
bank are mobilized through various forms of deposit products (Amin, 2013; A. G. Ismail et
al., 2013). By the end of 2018, deposit accounts made up a total of nearly RM 660 million
in the Malaysian Islamic banking system, a much larger proportion than its investment
account counterpart that made up nearly RM 83 million (Bank Negara Malaysia, 2018a).
This may be due to the fact that Islamic deposits have maximum flexibility in withdrawal
and amount guaranteed by Malaysia Deposit Insurance Corporation or better known as
Perbadanan Insurans Deposit Malaysia (PIDM) (Adznan, 2018).
Types of deposit accounts include saving account, current account and term
deposit (Bank Negara Malaysia, 2014). Saving accounts and current accounts are accounts
that allow the depositor to do basic banking services at low or no cost (Bank Negara
Malaysia, 2009). Current accounts have an additional feature over saving accounts of
allowing withdrawal by third party designated by the customer through, for example,
cheque payment (BMB Islamic, 2011).
Meanwhile, term deposit is a type of deposit held at a bank that has a fixed term,
generally short ones with maturities ranging anywhere from a month to a few years that
requires withdrawal to be allowed only by the end of the term or by giving a
predetermined number of days’ notice (A. G. Ismail et al., 2013). Term deposits offer the
bank with the greatest level of confidence in its credit operations (Maswadeh, 2020).
Since the IFSA 2013 does not allow Islamic banks to use mudarabah and wakalah
as underlying contracts for principal guaranteed deposit account, there is a need to create
a new product which complies with the IFSA 2013 (A. G. Ismail et al., 2013). In this
context, the tawarruq concept becomes an alternative and achieved a wide usage as
underlying concept in Islamic deposits. In 2016, Islamic deposits based on tawarruq
increased by 7.5%, reflecting higher demand for fixed rates of return on deposits offered
under tawarruq contracts (Bank Negara Malaysia, 2016).
By the end of 2019, 63 percent of deposit accounts are those of tawarruq
concept, making up more than half of the sum (Bank Negara Malaysia, 2020). In
October 2021, Malaysia Islamic banking system’s total tawarruq fixed deposit reached
about RM 384 million, the largest among other types of deposit (Bank Negara
Malaysia, 2021b). Typically, a deposit structure based on tawarruq concept is as follow
(Shafie et al., 2020; Sobol & Dopierla, 2019):
1. Customer appoints Islamic bank as an agent to purchase Shariah compliant
commodity from a broker via Bursa Suq Al-Sila’ Malaysia (BSAS) on cash basis.
2. Islamic bank purchase the commodity on behalf of the customer. The customer
now is the owner of the commodity.
3. Customer sells the commodity to Islamic bank on a deferred basis.
4. Islamic bank sells the commodity to another broker via BSAS on cash basis.
5. Proceed from the sale in number 4 will be utilised for the Islamic bank’s funding
purposes.

Currently, all of Islamic banks in Malaysia apply the tawarruq concept for their
Islamic deposit account products except one Islamic bank. Some Islamic banks offer
Islamic deposit product either by tawarruq or qard concept. This can be seen in the table
below:

Table 2: Islamic Concept Applied in Islamic Deposit Account Products by Malaysia Islamic
Banks
No Islamic Bank Islamic Concept Applied in
Islamic Deposit Account
1 Affin Islamic Bank Berhad Tawarruq
Qard

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2 Al Rajhi Banking & Investment Corporation Tawarruq

(Malaysia) Berhad
3 Alliance Islamic Bank Berhad Tawarruq
4 AmBank Islamic Berhad Tawarruq
5 Bank Islam Malaysia Berhad Tawarruq
Qard
6 Bank Muamalat Malaysia Berhad Tawarruq
7 CIMB Islamic Bank Berhad Tawarruq
8 Hong Leong Islamic Bank Berhad Tawarruq
9 HSBC Amanah Malaysia Berhad Qard
Murabahah
10 Kuwait Finance House (Malaysia) Berhad Tawarruq
Qard
11 Maybank Islamic Berhad Tawarruq
12 MBSB Bank Berhad Tawarruq
13 OCBC Al-Amin Bank Berhad Tawarruq
Qard
14 Public Islamic Bank Berhad Tawarruq
Qard
15 RHB Islamic Bank Berhad Tawarruq
Qard
16 Standard Chartered Saadiq Berhad Tawarruq
Qard

DISCUSSION
The implementation of tawarruq in Malaysia is corely backed by official bodies such as
BNM’s Shariah Advisory Council (SAC) and Bursa Malaysia. BNM’s SAC played a vital part
in ruling permissibility of tawarruq. The body even rule permissibility of several practices
in tawarruq ruled impermissible by international bodies like AAOIFI and Council of
International Islamic Fiqh Academy i.e appointment of bank as an agent on the behalf of
customer to sell commodity bought from the bank itself and the practice of dual agency.
This leniency opens wider doors for tawarruq implementation in Malaysia’s Islamic
banking and finance industry.
On the other hand, Bursa Malaysia through its wholly owned subsidiary, Bursa
Malaysia Islamic Services (BMIS) action in managing BSAS that facilitate banking and
financing practices using tawarruq by providing a commodity platform that observes
Shariah principles while integrating global Islamic financial and capital markets together
through one single engine proves the seriousness of Malaysia Islamic finance and banking
industry to bring tawarruq practice to a higher level.
The application of tawarruq concept in Islamic banking products is mainly the
result of evolution from previous Shariah concepts underpinning the products. In Islamic
personal financing, home financing and credit cards, for example, the services was
previously dominated by bay al-inah concept. However, following strong critiques and
controversies, new concepts needed to be introduced, hence, tawarruq took the spotlight
in replacing its place. In the case of deposit products, since the IFSA 2013 does not allow
Islamic banks to use mudarabah and wakalah as underlying contracts for principal
guaranteed deposit account, tawarruq-based deposit products came into the lime light. It
can be seen here that tawarruq was somehow brought up as a solution to problems arised
in previous application of Shariah concepts underpinning these products and
subsequently dominating the Islamic finance and banking industry.
Nevertheless, even in acting as a solution, the critiques following tawarruq
operation in banks are not little. Critiques pertaining the issue of legal stratagem to gain
usury, for example, is the heaviset of all since usury or riba is a grave sin a believer is

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strongly prohibited to commit. It is even the same essence of critique on the practice of
bay al-inah that subsequently led to its replacement with other Shariah financial concepts.
Meanwhile, in the issue of pre-arrangement and dual agency, they seem to be impossible
to be separated from current practice of tawarruq considering that it will become difficult
for Islamic banks to carry out tawarruq without these two practices. However, by
continuing these two practices, it will just be a proof that tawarruq that are being
practiced today indeed aimed towards usury, i.e gaining money with money. In this
context, a more innovative alteration in the operation of tawarruq needed to be come up
with.

CONCLUSION
Tawarruq is gaining larger popularity in Malaysia Islamic banking and finance industry.
Year by year, tawarruq is comprising larger percentage in Malaysia Islamic banking
portfolio. Islamic banking products such as personal financing, home financing, credit
cards and deposit accounts are underpinning tawarruq as their base operational concept.
However, the pratice of tawarruq is not free from heavy critiques. Innovative alterations
need to be applied on the current practice of tawarruq to mitigate these critiques.
Otherwise, the application of tawarruq can be considered as a good effort in the share of
Islamic banking and finance player to bring the industry to a higher level.

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