Monday, November 16, 2009

Organised tawarruq not a perfect structure, says cleric

Organised tawarruq as it is currently practised is not ideal from the Shariah's viewpoint, a Malaysian religious expert said on Monday, casting doubt on the use of the controversial Islamic financing structure, reports Reuters (Nov 4, 2009).
In its basic form, tawarruq is an asset sale to a purchaser with deferred payment terms. The purchaser then sells the asset to a third party to get funds. Organised tawarruq is similar although the transactions are executed through banks.
Organised tawarruq should avoid specifying beforehand the parties' obligations under the contract although this protects their legal rights, Shariah adviser Rusni Hassan said, backing a divisive Fiqh Academy ruling that had thrown the industry into turmoil, the report said.
"The one tawarruq that is not good is the one that is prearranged," Rusni, who advises HSBC Amanah Malaysia, told Reuters on the sidelines of a Shariah scholars conference. "(The objection is) because two contracts are in one, they should be independent," she said.

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