Why is Tawarruq not from the Islamic finance genre?

In-Depth Analysis

Continuing our discussion on Tawarruq, we shall learn the limited permission granted by scholars on its usage and why. Shariah principles are always supportive of the business environment and stand for positive contribution to economic development. However, Shariah parameters recognize the loss situations as well and have provided complete guidance on how to deal with them. In the interest of clarity, the author produces a full definition of permissible Tawarruq based on the Islamic Fiqh Academy's Fatwa No 179 (5/19) issued in its council session No 19 held in Sharjah in the UAE in April 2009: 'According to Islamic jurists, Tawarruq means purchase by a person (Mustawriq) of goods on [a] deferred payment basis so as to sell the same on cash mainly at a lower price to a party other than its seller with a purpose to get cash. This Tawarruq is permissible in Shariah provided that the conditions of [the] sale as laid down by Shariah are met.' In the same Fatwa manuscript, the Islamic Fiqh Academy provided an admirable recommendation for Islamic banks and financial institutions: 'The Islamic banks and financial institutions should employ Shariah compliant modes of investment and financing in all their activities and should avoid prohibited or ill-reputed modes, by complying with the Shariah principles in a way to accomplish the objectives of noble crises.' It is allowed as a special case under a necessity situation for an Islamic bank to help a customer get rid of Riba-based debt through Tawarruq and to stop forever the Riba-based dealings, subject to the customer strictly satisfying the following conditions: (a) customer owes interest-bearing debt to a conventional institution, (b) customer is unable to repay from own sources, (c) Islamic bank is unable to finance through any other Shariah compliant manner, (d) customer is repenting and gives written undertaking not to deal with interest-based transactions in future, (e) customer undertakes that all future financial dealings will be Shariah compliant, (f) Tawarruq facility for extinguishing conventional debt has not been utilized by the customer earlier, (g) Tawarruq transaction complies with the permissibility as per the Islamic Fiqh Academy's resolution of 2009.