The Application of <i>Bay’ Al-Tawarruq</i> in Islamic Banking Institutions in Malaysia: A Study of Bank Muamalat Malaysia Berhad

Mahyudin, Mohd Izuwan; Seman, Azizi Che

doi:10.1108/978-1-78756-283-720181011

Cited by 6 publications

(7 citation statements)

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“…A number of studies have discussed the jurisprudence and the application of tawarruq in IFIs (Al-S alūs, 2004;Al-Shalhoob, 2005;Al-Rashīdī, 2005;Shubayr, 2009;Uthman, 2009;Á Hamm ad, 2009;Aleshaikh, 2011;Ahmed and Aleshaikh, 2014;Mahyudin and Seman, 2018;Sharaiyra and Haswa, 2019;Alkhan and Hassan, 2019). Some studies also discussed the Sharīʿah issues in the practice of tawarruq (Firoozye, 2009;Noor and Azli, 2009;Dusuki, 2010;Khnifer, 2010;Dusuki et al, 2013;Mohamad, 2014;Mohamad and Ab Rahman, 2014;Ismail, et al, 2016;Rahman, 2016;Ahmad et al, 2020).…”

Section: Introductionmentioning

confidence: 99%

Survey on Sharīʿah non-compliant events in Islamic banks in the practice of tawarruq financing in Malaysia

Ali

Hassan

2020

IJIF

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Purpose Tawarruq (Islamic commodity financing) has evolved as the most ubiquitous concept in Malaysia’s Islamic banking industry. Nevertheless, the extensive use of tawarruq has invoked a number of Sharīʿah (Islamic law) concerns in its practice. This study aims to investigate the Sharīʿah non-compliant (SNC) phenomena in the practice of tawarruq financing in Malaysia. Design/methodology/approach This study adopts qualitative research methodology, combining both descriptive and content analysis. A self-administered questionnaire was distributed to 16 Malaysian Islamic commercial banks to unveil the Sharīʿah non-compliance issues in the application of tawarruq in Islamic banks (IBs) in Malaysia. Findings This study found that some practices of tawarruq in Malaysia might not comply with Shari’ah, mainly because of the improper sequencing of contracts. The study also discovered that IBs adopt different approaches in dealing with SNC events and the income derived therefrom. Finally, the study noted the influence of board of director/management on certain Sharīʿah decisions particularly about the treatment of non-halal income. Research limitations/implications The findings of the study serve as a reference to industry players and regulators in formulating Shari’ah non-compliance risk management framework for tawarruq practices. Originality/value The survey on SNC issues in tawarruq practice constitutes the first of its kind in the existing literature.

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Section: Introductionmentioning

confidence: 99%

Survey on Sharīʿah non-compliant events in Islamic banks in the practice of tawarruq financing in Malaysia

Ali

Hassan

2020

IJIF

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“…Due to the obvious current banking challenges, some Shar ı'ah experts suggested that BNM along with IBs establish more strict and systematic operational parameters and tawarruq contract procedures (Mahyudin and Seman, 2018;Alkhan and Hassan, 2019). Moreover, IBs should reduce their reliance on tawarruq contracts for their product offerings (Ali and Hassan, 2020).…”

Section: Discussionmentioning

confidence: 99%

Experts' views onḥiyalin Malaysian Islamic banks: the case oftawarruq-based deposit products

Syahmi

Mohamad

Ramli

2022

IJIF

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PurposeThere are two purposes to this study: first, to identify the status of ḥiyal (legal trick) in the offering of deposit products based on the tawarruq contract in the Malaysian Islamic banking industry and second, to identify the reasons for the widespread offering of tawarruq-based deposit products by Malaysian Islamic banks (IBs). Both aims of the study are addressed from the viewpoint of Malaysian experts in the area of Islamic banking.Design/methodology/approachThe study used a qualitative method that involved interviews with Malaysian Sharī‘ah experts and Islamic banking operations experts.FindingsThe findings show that Malaysian IBs resolved to use the tawarruq munaẓẓam contract in deposit products due to several constraints in the existing banking system and in view of customer preferences.Research limitations/implicationsThis study solely focuses on tawarruq-based deposit products in the Malaysian Islamic banking industry, with no other products explored. The focus on tawarruq-based deposit products was due to the extensive application of tawarruq in Islamic banking deposit products that had also led to accusations against Islamic banking operations from various parties.Practical implicationsThe implication of the study is that more stringent procedures are required in the offering of tawarruq-based deposit products as they are extensively utilised and have sparked controversy among Sharī‘ah scholars. Moreover, to retain Malaysia's Islamic banking reputation and trustworthiness, new and less controversial contracts must be developed.Originality/valueThis paper discussed the extensive usage of ḥiyal-based contracts such as tawarruq in Islamic banking institutions' deposit products, with justifications from Malaysian Islamic banking experts. The widespread use of the tawarruq munaẓẓam contract in deposit-based product offerings is based on a reasonable view considering the constraints that Malaysian Islamic banking is currently facing, with strict operation procedures by Bank Negara Malaysia to ensure real operations and to avoid fictitious elements. This paper reveals the use of tawarruq munaẓẓam in deposit products which allows the Islamic banking industry to operate effectively under Malaysia's dominant conventional banking system.

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“…Even Ahmad et al (2017) state that all transactions related to Tawarruq contract commodity must be done through BSAS. Even though numerous research studies have been conducted on the application of Tawarruq in Islamic banking in Malaysia (Amin and Hassan, 2022;Mahyudin and Seman, 2018;Asni, 2022), no research so far has been conducted to understand the potential of Tawarruq between individuals. As such, this research intends to fill this research gap.…”

Section: Prrmentioning

confidence: 99%

Can micro-enterprises use Tawarruq Fardi Financing (TFF) for fund raising?

Siddiky

Swandaru

Muneeza

2022

PRR

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PurposeMicro-enterprises, like any other business entity, face financing challenges. However, micro-enterprises often cannot access financial institutions as they cannot fulfill the conditions to obtain financing facilities from a formal financial institution. As such, they have to rely on family or friends for financing needs. The most critical challenge faced in this regard to Muslim micro-enterprises is finding out a way in which family and friends could give a financial helping hand without the involvement of riba (interest). At the same time, the person giving the financing can enjoy a profit. This paper aims to propose the Tawarruq Fardi Financing (TFF) model that Islamic micro-enterprises could use to fulfill their financial needs. It becomes a solution when obtaining financing from friends and family or any other third party who could be a private investor who does not want to engage in an equity relationship.Design/methodology/approachThis study adopts a qualitative research methodology, combining descriptive and content analysis using the inductive reasoning approach.FindingsThe paper's outcome shows that the proposed TFF could assist Islamic micro-enterprises in obtaining Shariah-compliant financing without engaging in an equity partnership. It allows them to fulfill their financing needs bearing in mind the interest of both parties involved in the transaction.Originality/valueThis research will assist Islamic micro-enterprises to find out a Shariah-compliant financing facility from family, friends and any other private investors without entering into an equity relationship. The proposed model would be a Shariah-compliant alternative to interest-free loans and engaging in an equity relationship for the sake of getting benefits for both parties involved in the transaction.

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The Application of Bay’ Al-Tawarruq in Islamic Banking Institutions in Malaysia: A Study of Bank Muamalat Malaysia Berhad

Cited by 6 publications

References 0 publications

Survey on Sharīʿah non-compliant events in Islamic banks in the practice of tawarruq financing in Malaysia

Survey on Sharīʿah non-compliant events in Islamic banks in the practice of tawarruq financing in Malaysia

Experts' views onḥiyalin Malaysian Islamic banks: the case oftawarruq-based deposit products

Can micro-enterprises use Tawarruq Fardi Financing (TFF) for fund raising?

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