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  • Adem Aman

The Tawarruq Practices in The Participation Banks of Türkiye

Güncelleme tarihi: 29 Ağu 2023

Introduction: The Quran and the Sunnah are the primary sources of reference that are followed by Ijma and Qiyas (Analogy) to direct upon the permissibility or prohibitability of any actions of day-to-day activities. Allah (saw) ordained what is halal or haram by his almighty guidance to all ummah of Muslims towards the eternal happiness of hereafter (Rahman and Manan).

Problem Statement: Are Tawarruq practices in the participation banks of Türkiye?

Background of The Study: Tawarruq is extensively used in most Islamic financial institutions for liquidity acquisition purposes, a workable alternative solution to that is, a cash reserve ratio focused on investment-based and profit-loss sharing products. Nevertheless, today tawarruq practices in the real market are doubtful from different angles.

Objectives of The Study: To examine the tawarruq practices in the participation banks in Turkey. Besides, aims to discuss and evaluate its application from the Islamic law (i.e., shariah) point of view.

Methodology: Data collection techniques are both quantitative and qualitative as well as deduction approaching methods carried out.

Section I: Definition and Types of Tawarruq

Definition of The Tawarruq

Tawarruq is defined as one of the financing methods since the past to present, which is considered as an independent kind of contract in the form of some sects. However, nowadays, unlike the past, it is a highly complex, multi-process financial product package. While the definition and the legal provision of Tawarruq are investigated, it is necessary to contact the bey’ul-ine with classical and contemporary period practices (Tahlİlİ; Kazancı; Bayındır). The origin of the word, tawarruq, comes from the Arabic base, al-wariq, which means silver or dirhams (Nurhisam; Kazancı; Mohamad and Ab Rahman).

“Tawarruq can be defined as an act to buy the commodity by a person on a deferred basis, and then sell it with a lower price on a cash basis to someone else other than the initial seller to acquire cash (Mohamad and Ab Rahman).”

In other sayings, tawarruq means to request cash, to obtain or demand liquidity within being in need of time sessions. Tawarruq mostly used for demanding silver money in the classical period, but now it has become available to meet the demand for cash that includes all kinds of Money (Tahlİlİ). Therefore, “Tawarruq is a transaction of a commodity from one customer to other customers on deferred payment of sell. Then, the former customer takes constructive of the commodity, and the later customer sells the same commodity to the first/former buyer, and finally, the commodity moves from the warehouse of the first (former) seller to the last/later buyer (which is the first seller), and the later buyer completes possession (Khan).”

According to Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI), “Tawarruq can be defined as a person (mustawriq) who buys merchandise at a deferred price, to sell it in cash at a lower price. Usually, he (the person or entities) sells the merchandise to a third party to obtain cash. The aforementioned is the classical tawarruq, which is permissible, provided that it complies with the Shari’a requirements on sale (Sharia Analysis of Tawarruq Based Products).” Albeit, in contemporary practice such genuine real transaction form of tawarruq contract has not been exercised, while fictitious form replaced by buying and selling the some item or commodity without dire transaction of commodity exchanged between the necessary parties only for the seek of reach out cash interest the buying and selling done through paper tricksome.

Many Islamic financial institutions extensively use Tawarruq for liquidity management purposes, and a workable alternative solution must be accessible, which is that the cash reserve ratio is focused on investment-based and profit-loss sharing products. These also rule the fractional banking system, which is relying on cash management (Khan). It usually can be divided into two groups: individual and organized tawarruq. It is possible to describe the individual Tawaruq in the following way: To obtain cash, buy a product as a due date and then sell it to another person which is different from the first seller (Kazancı).

Tawarruq is a form of financing used by Interest-Free Banking Institutions to evaluate their idle funds in particular. According to this, banks are assessed as follows: A bank that makes interest-free banking deposits in another bank account without interest or within an interest. The first bank orders the second bank to buy commodities on its account. Then the second bank buys products from a stock market organized on behalf of its client, the London Metal Exchange. The second bank requests that the commodity it holds on behalf of its client be sold to it profitably. The second bank sells the product that he wishes to his own but sells it on the second-hand market. Thus, there is no trace of commodity trade between banks, but only the term placement relationship remains (ARPAĞ). In other ways, participation banks also carry out “Commodity Murabaha” transactions in Turkey, which replace tawarruq transactions contract within other interest-free banks or conventional banks to manage their liquidity (Kazancı).

Types of The Tawarruq

Tawarruq is mainly divided into different categories in various literature. However, in this paper, it is focused on the most used ones again and over again in numerous sources. In the past, it has been understood that a narrow sense means a single kind of process. Nowadays, primarily there are three kinds of tawarruq applications across the globe. Those are:

a) Individual tawarruq (Al-Tawarruq al-Fardi);

b) Organized tawarruq (Al-Tawarruq al Munazzam), and

c) Inverse tawarruq (Kazancı; Bayındır; Tahlİlİ).

1. Individual tawarruq transaction means, it is the process of buying a commodity to acquire cash or bargaining, and then it is selling in cash money to someone rather than a first seller. These kinds of tawarruq are referred to in the literature as official or fiqh tawarruq (Tahlİlİ; Bayındır). Obviously, the Islamic Fiqh Academy, the World Islamic Union, and AAOIFI fatwa delegations follow the rules of individuals to fulfilling and accept the individual tawarruq, whereas the organized tawarruq is not allowed (Bayındır).

Consequently, classical tawarruq is viewed as permissible by the majority of classical fiqh scholars because due to the involvement of third-party, which is not considered as high. And, organized tawarruq is prohibited by the majority of scholars due to bank appointment as agent (wakalah) is regarded as high, whereby the trading transaction is fictitious and unable to fulfill the possession requirement and has similarity with ‘inah (Mohamad and Ab Rahman).

2. Organized Tawarruq is a type of transaction that is arranged between the seller (banks) and the person (customers) requesting cash by the contractor, those who have undertaken a process systematically, and are involved in the selling actively. This type of constructed transaction is called Bank tawarruq. Nowadays, it is organized and executed by banks via commodity Murabaha in general (Tahlİlİ). In other words, the commodity Murabaha is a kind of tawarruq which is known as interbank tawarruq. This method was developed for short-term cash transfers in Islamic interbank liquidity management. It is also implemented between interest-free banks within the country or in between international banks and may have been realized between a conventional bank (Kazancı).

Participation banks; in previous experience participation banks carry out transactions of a commodity through brokerage companies based in the UK, which are trading in the London Metal Exchange (LME), and interest-free banks in Malaysia and some Gulf Countries perform their transactions through the Malaysia Stock Exchange. In both exchanges, certificates representing metal or agricultural products are to be bought and sold. However, in the current practical aspects participation bank endeavors to replace LME with Gold and platinum trading for commodity tawarruq transactions.

3. Reversal Tawarruq means the kind of money that is applied to the deposit holder to deposit money with interest for a certain period and with no risk and return to the bank. Other types of transactions are used to find cash, while more cash in hand is used to deposit into a bank (Tahlİlİ).

Organized and reversal tawarruq contract transactions are not acceptable since 2009 relying on the decision of the OIC reports, because the OIC Islamic Fiqh Academy committee agreed that the process of its application and operation is impermissible based on the Shari’ah law (Rahman and Manan).

Tawarruq From The Point of Shariah Views and Four Schools Thought

This section briefly describes the literature content of each segment. The conducted analysis of literature reviews attempts to summarize the essence of the subject matter, as it is explained in the numerous literature sources to conclude the assumption for each four fiqh thoughts from the Shari'ah point of view. The scholars mention that the reasons why tawarruq transaction is permissible or prohibited lean on different purposes depending on their Shari'ah rules. Hence, Some jurists rely on their individual perspective and the globalization market, which they are trying to drive a new structured rule and regulation from the concept of tawarruq, enhancing more profit and facilitating the transaction seems like the conventional market structure. However, most scholars do not accept such types of practices. On another aspect, all Islamic scholars share similar notions within the concept of tawarruq. However, their differences begin in their process of exercises and application operations on the grounds.

In Hanafi fiqh, tawarruq is considered and evaluated under bey’ul-ine. Abu Yusuf considers this practice permissible and has shown that many companions used this method as evidence. However, Imam Muhammad did not find this a proper or allowable way, because he thinks that the creditors invent it. According to Zeylai, another from Hanafi fiqh, the bey’ul-ine process is as follows: A person wants a debt from a merchant. The Merchant, a 10-cent value commodity in the market and sells it to the person who wants to borrow on 15-cents to a person to get cash. The borrower intends to sell the goods to the demand for 10- cents and obtains the cash money needed, and the trader owes 15- cents in term (Kazancı).

The scholars of the Maliki fiqh do not allow the transaction of tawarruq. “Most of them consider the sale of goods at a price lower than the market price when it is done by someone who took advantage of loans in ways that fall into the category of usury or exploitation, the transaction is not much different with ‘inah.” Here, the tawarruq deal is not allowed by most scholars of the Maliki school like Umar Ibn Abdul Aziz and Muhammad Ibn al-Hasan. Nevertheless, Ibn Taymiyah and his student Ibn al-Qayyim of the Hanbali school think that tawarruq transactions done when goods bought and sold only as an intermediary to get cash and ownership of the item does not become the main objective. In other sayings for Ibn Taymiyah and his student Ibn al- Qayyim tawarruq is permitted when only the exchanges of goods bought and sold as an intermediate to solve the cash problems and to transfer ownership of the item are not considered as the primary goal (Nurhisam).

According to shafi’i schools, in regard to the notion of Imam Shafi, the intentions, and the objectives of the transactions are based to give the verdicts in general. This means Shafi fiqh is also accepted by bey’un-ile practices. Hence, Imam Shafi explains that hiding bad intentions is haram. According to him; Even if a valid contract seems suspicious, it should not be considered superstitious because of its mock-up and should be regarded as reasonable in its appearance. But if there is a lousy intent against Islam, then the relevant act would be inevitable (Kazancı).

Hanbali, first of all, sees the fraud as a whole haram. When Tawarruq is applied for fraud, it is also evaluated within this scope. However, there are different narrations about the nature of the Hanbali faith (Bayındır). Regarding Shari’ah scholars; Hanbali, Shafi’i, and Hanafi schools permit the application of tawarruq (Tahlİlİ).

Nowadays, concerning tawarruq, there are controversial cases arising whether it is permissible or not. However, some jurists argued that tawarruq is refused because it is a harmful outcome to the users. For instance, the OIC International Islamic Fiqh Academy in 2009 prevented transactions of tawarruq based on the Shariah law (Rahman and Manan). On another side, In terms of the legal maxim as states, “the original rule permits all beneficial things unless within a piece of evidence no proof on its prohibition.” Based on these rules, tawarruq is acceptable to provide liquidity to those who require cash money immediately (Yuhanis and Ismon).

To emphasize that the concern of the scholars is not on the concepts of tawarruq itself but the way of its process of applications, practices, and especially, in today’s modern financial tools tawarruq used for different aims and purposes which are out of its nature. The utmost goal of tawarruq is to transfer lawful earnings to users, but it’s not to bring prohibited transactions that are rejected by the Almighty of Allah (swt) by his Holy Quran and sunnah (Rahman and Manan).

According to, the OIC’s International Council of Fiqh Academy ICFA prohibits tawarruq if any of the following fall out: when there is no real and unconnected third party, when a concealed buy-back, and if the transaction is a “trick” with an embedded fixed return (Khan; Rahman and Manan). Yet, Allah allowed sales, but it rejected unlawful increment above principle on the loans or debt (Rahman and Manan).

“Accounting and Auditing Organization Islamic Finance Institutions (AAOIFI), a Bahrain-based organization that sets the standards of Islamic Finance, has published a standard as follows. In commodity markets, the commodity sales contracts can be made in compliance with the following conditions: The commodity sold must be available and be the property of the seller. The commodity sold must be assigned in such a way that it can be separated from other goods. For the fulfillment of these two conditions, the existence of documents that prove the existence of the commodity and document the ownership of the property and which distinguish this commodity from other goods by means of numbers or other information is sufficient. A contract that prevents the customer from taking delivery of the commodity and compiling it should not be included in the contract (ARPAĞ).” Without fulfillment of these rules mentioned above, even if one of it missed, the transactions contract that is to be applied or undertaken by the name of tawarruq is rejected.

Section II: Data about the practice of Tawarruq in the 5 Turkish Participation Banks

In this section, we are trying to discuss the practical operations of tawarruq in the participation banks in Türkiye. However, our explanation and analysis are focused on more about the fundamental parts, and some obtained information from participation bank workers and managers through interviews. In Türkiye, participation banks attempt to collect unpayable or unreceivables contracts of murabahah through tawarruq transactions by restructuring the systems again. Participation banks carry out commodity Murabaha transactions, which are another kind of transaction with interest-free banks or conventional banks to manage their liquidity. For restructuring, the bank’s customer closes his/her debts to the bank by using the cash obtained through his/her insurance and restructures with an absolute maturity difference. On a global scale, it is seen that in some countries, individual and corporate finance transactions have been used (Kazancı; Bayındır).

Additionally, Tawarruq practices in the participation banks in Türkiye are very paradigmatic. During my investigation to collect data and information about tawarruq operations in the participation banks in Türkiye, I did not have to get optimistic feedback from bankers' managers. Because workplaces or banks' rules and regulations are ordered them to hide information about the banks (i.e., keep confidential the bank's business notions), and they do not share it outside to others.

One of the participation managers told me that they use tawarruq for three purposes. Firstly, to solve some cases or problems. That means when the customer cannot be paid his credit on the maturity date and questions arise. To address such issues, they had arranged a new agreement with the user to deal with him as he gives them wakala to the banks. And the banks bought the commodity Murabaha platinum from the London Metal Exchange on behalf of the customers and the receipt of the transaction (metal bought from LME) was transferred to the customer with deferred payments. The customer sold the metal to the other third party by market value to pay his credit to the banks according to the new installment agreement they reach upon agreed. However, it is not yet the main item of financial activity for them.

Secondly, they use it for necessity or as a product to generate cash which means organized tawarruq. The critical point here is LME, which is a law-regulated market that brings together participants from the technical and financial side and operates 24 hours a day. The stock market provides physical delivery via licensed warehouses connected to the LME worldwide. Besides, LME serves metal manufacturers and consumers as the final application authority in the physical market and, more importantly, provides price protection against the risk of world metal prices falling or increasing. In addition to metals such as aluminum, copper, zinc, nickel, and lead, LME also sells steel, and platinum are also traded on this stock exchange. The asset subject to a commodity Murabaha is a commodity represented by the LME certificate (warrant). LME certificates are certified metal certificates stored in a warehouse approved by the LME, which enables the purchase of the metal represented by the license (Kazancı).

Thirdly, to take the product from others mean likes sukuk, which is a back asset of the firms to invest 50% on the Project and 50% as a cash return profit structure. Instead, governments and corporations looking to raise capital will issue sukuk notes which still pay a fixed percentage return, but with two significant differences. In these systems like western-styled bonds debt instruments were allowed for buying and selling of that debt, sukuk is based on tangible assets such as properties or businesses which would enable the buying and selling of those assets. And, where bonds pay a fixed rate of return as interest, sukuk pay a fixed rate of return as a profit-sharing percentage of the underlying assets’ revenues, or as rental payments for renting those assets back to the issuer.

For instance, when a shopping mall issues sukuk, ownership of its assets are transferred to the sukuk holders. As co-owners of the mall, sukuk holders are entitled to a share of the mall’s profits, which is paid at a fixed percentage based on international benchmark bond rates of comparable categories.

In the case of a project that does not generate revenues, such as a public infrastructure project, the government-issued sukuk transfers ownership of the project’s assets to sukuk holders just the same. However, to reward the sukuk holders for their investment in the project, the government effectively rents the sukuk’s assets from the sukuk holders at a fixed percentage. In both cases – sukuk of revenue-producing businesses as well as sukuk of non-revenue-producing government projects – it is not debt but tangible assets that are transferred to the sukuk holder. Those assets are then transferred back to the issuer when the sukuk matures, with the principal investment paid back to the investor.

Thus, because the investor is not buying debt but is buying a tangible asset that generates either revenue or rent, returns paid on a sukuk are acceptable under Islamic law since they are considered profit-sharing benefits, not interest.

Other interesting issues are terms like Tawarruq, Murabahah, Commodity Murabahah, and Musharak are not found in the balance sheets and annual financial reports of the participation banks in Türkiye. However, some of the activities done under the tables are may be found in the column of the financial product items which is also in a mixed way and the others may be under sukuk items most probably. According to the participation bank managers for the above issues, there are two main reasons: firstly, Islamic Finance has no still Islamic balance sheet, but it’s using the customized balance sheet from the conventional banks. Second, in Türkiye, there is no Islamic law or rules and regulations for participating banks separately.

One of the participation banks mentioned that tawarruq and commodity murabaha is used in Türkiye as the complementary product that organized structure. As explained by the bankers, after murabahah credit is given to the customers and the debt cannot be paid back within time, the organized tawarruq is taken the place to generate liquidity for customers who has debt from their banks by new agreement deals. To facilitate the customers’’ ability to pay back their credits by taking wakalah from the debtors and they have bought metal from London Metal Exchange on their behalf. Then dealing with two different brokers, for instance, Eiger and Falcon brokers, which are buyers and sellers respectively. The customer gets a certificate after the metal soled is transferred to his own with a deferred payment that he /she pays to the banks in a long installment maturity date.

Section III: Result, Evaluation & potential alternatives and Recommendations


In Türkiye’s participation banks, the ways of the operations aspect of the tawarruq is not clear in any methods and guidelines of Shari'ah ruling (Islamic laws). On one side, Turkish law does not support tawarruq transactions, and the participation banks did it under the tables as the participation banks' workers dictated. AAOIFI also prohibited the tawarruq since 2009 relying on the OIC International Islamic Fiqh Academy members of jurists; almost 300 participants attended in that conference decision. So these questionable practices operations of tawarruq in the participation banks of Türkiye are continuous and also not enough data was found to analyze in detail due to the reason that all participation banks did not want to share information with others.

Evaluation and potential alternatives

Tawarruq, which is widely used in the contemporary Islamic banking system. Therefore, any Shari’ah resolution issued by the authorized bodies might impact the operational aspect of the Islamic banks where the tawarruq principle underlies the banking product and the transaction shall abide by the issued ruling.

In Türkiye to upgrade the transactions of tawarruq and to establish the best platforms to facilitate the market exchange for the users since 2013 using Licensed Warehouse Enterprises of Electronic Product Bonds (ELÜS), products were started currently trading in more than one Trade Exchange. Hence, within the whole regulation of the setup, operation, control procedures, and principles of the Product Specialized Exchange are published in the Official Journal on August 10, 2017, all the Commodity exchanges will be merged and named as Product Specialized Exchange (UIB). So, they will be rethinking whether this system is a complementary or competitive trade exchange in terms of London metal exchange in the near future.


Classical Tawarruq, past to present can be accepted by Islamic jurisprudence and most of the jurists regarding the concept. And, from the beginning of Islamic thought, tawarruq is considered beyul’ine. But today, the applications and practices operation aspect of tawarruq is extended beyond or above the concepts of the being set up aims and out of the intentions of Islamic shariah law. Notably, the idea of organized tawarruq is the original thought that is to require more discussion. Depending on the process of applications and the conditions of operations, which is possessed, most of the scholars rejected the organized or bank tawarruq from the Shari'ah point of view. Organized tawarruq activities are improper in its nature and based on participation banks' principles and regulations as well. Finally, today at a worldwide, national, and international level tawarruq is a very controversial product on whether to use or not to use it in Islamic banking from different presumptions.

Section IV: Conclusion

This paper demonstrates that most of the abovementioned discussion issues are more theoretical and literature review. The reason is that getting detailed data and pieces of information from participation banks in Türkiye cannot easy. Hence, as explored by data from different participation bank managers and literature reviews, one of the hopes of participating banks will be able to operate tawarruq easily in Türkiye depends on Licenced warehouse enterprises of electronic product bonds exchange, which is complimentary within the London Metal Exchange.

It means that Licensed warehouse enterprises of electronic product bonds Exchange to officialize the system which is structured well to legalize the participation bank’s rules and regulations operations. According to the constructors of the organized tawarruq, the issue aims to solve some problems that arise in the case of murabahah credit, and within the bits of help of tawarruq and commodity murabahah, which is structured electronic products bond exchanges methods they are planned to fix it easily. However, the items of tawarruq, commodity Murabahah, and Musharakah cannot be registered in the balance sheet of financial statements and annual reports of participation banks in Türkiye.




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