Abstract
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 The study found that some practices of tawarruq in Malaysia might not comply with the Sharīʿah, mainly due to 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 on the treatment of non-ḥalāl (impermissible) income. Practical implications The findings of the study serve as a reference to industry players and regulators in formulating a Sharīʿah 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.
Highlights
Tawarruq, commonly known as commodity murabahÁah, is a financial instrument that has facilitated the launch of unprecedented and sophisticated Islamic commercial products, ranging from deposit and financing instruments to liquidity management and debt© Mohammad Mahbubi Ali and Rusni Hassan
Descriptive and evaluative analyses are used to analyse this section. Findings and analysis This part is the core of the paper, being devoted to presenting the survey findings on Sharīah non-compliant (SNC) events in Islamic banks (IBs) in the practice of tawarruq financing in Malaysia
Application of tawarruq in Islamic banks in Malaysia Tawarruq has gained full acceptance from the industry players because of its built-in features and characteristics that can deliver a similar economic outcome to conventional products. It has since the past few years evolved as one of the most widely used concepts in Islamic banking products in Malaysia
Summary
Commonly known as commodity murabahÁah, is a financial instrument that has facilitated the launch of unprecedented and sophisticated Islamic commercial products, ranging from deposit and financing instruments to liquidity management and debt. © Mohammad Mahbubi Ali and Rusni Hassan. Published in ISRA International Journal of Islamic Finance. The full terms of this licence may be seen at http:// creativecommons.org/licences/by/4.0/legalcode
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