Monday, May 11, 2009

Financial tawarruq may be here to stay, says scholar

By Habhajan Singh
The local Islamic banking fraternity may not go in the way of the International Council of Fiqh Academy with the usage of financial tawarruq, says a local Shariah scholar.
Dr Engku Rabiah Adawiah Engku Ali, an associate professor at the International Islamic University Malaysia (IIUM) and a Shariah advisor at a local bank, said that it would be an option moving forward in dealing with this issue.
Asked if the local Islamic finance fraternity may decide to carry on with the practice here, just as how they practice bai inah which is frowned upon in the Middle East, she agreed it could be a possibility.
"Compared to inah, this is less controversial. Inah is more controversial. So, if Malaysia had allowed inah, the possibility of allowing tawarruq is there," she told The Malaysian Reserve.
Bai inah, a concept of sale with an imediate repurchase, used to a great degree for personal and corporate financing, is widely used by Islamic financial outfits locally, but rejected by Shariah scholars in most jurisdictions in the Middle East and some other parts of the world.
At its meeting which ended on April 30, the influential Fiqh Academy announced that it had slapped a ban on organised tawarruq, a Shariah concept that had been widely used in the Middle East all these years and which began gaining currency locally in the last few years.
The decision, if adopted, would mean that local Islamic banks would have to steer away from the Shariah concept that is being injected into personal financing products like credit cards and personal loans.
"We have yet to see how the industry would react to this. It is to be seen if they would adopt this decision," she said.
Dr Engku Rabiah said the other possibility is to look for possible exceptions to overcome the objections towards deploying the tawarruq concept in Shariah contracts.
Upon an initial reading of the ruling, she said local banks could still apply tawarruq if they could weed out the parts that are found to be not permissible, since tawarruq itself is not the bone of contention. Locally, bankers from Islamic banks would start the process of trying to understand better the latest ruling from the Fiqh Academy.
"They are starting to talk about it. We need more information before we can decide on the next course of action, if any," said one banker with a regional Islamic bank.

(This story appeared in The Malaysian Reserve on May 11, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

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