Tawarruq through PMEX using High Speed Diesel (HSD

Abstract

On demand of some Islamic banks in Pakistan, the Pakistan Mercantile Exchange (PMEX) designed a structured product over the last some years to enable Islamic banks to do tawarruq using HSD as the underlying commodity. Keeping in view many Shar¯ı‘ah issues, the State Bank of Pakistan (SBP) allowed Islamic Banking Institutions (IBIs) on November 02, 2017 to undertake Commodity Mur¯abah. ah (CM) transactions through the PMEX for a pilot phase till March 31, 2018, the period that has been extended till October 31, 2018. A good move to be seen in this regard was that in the pilot phase HSD based tawarruq could be done only with the Islamic Banking Institutions (IBIs) in Pakistan. However, as IBIs have other modes like mur¯abah. ah and wak¯alah al-istithm¯ar (investment agency) for intra-Islamic banks liquidity placement, use of PMEX platform for tawarruq remained minimal and only six transactions were undertaken by a few IBIs. Keeping in view that the ‘Pilot Phase’ is coming to an end and that some banks have been anxious to get regulatory permission for excessive use of tawarruq as a means of investment and financing, the Journal of Islamic Business and Management (JIBM) considered it appropriate to discuss the related Shar¯ı‘ah issues precisely enabling the Shar¯ı‘ah scholars, the regulator and the practitioners to decide the matter for long-term benefit of Islamic finance industry.