U-2 The Application of Tawarruq in Contemporary Islamic Banking: A review of Fiqh academies’ perspective

Abstract

Liquidity management is the foundation of banking system. In Conventional Banking the lack of liquidity is met by interest based transactions. Islamic banks avoid interest-bearing activities, they use Tawarruq to solve liquidity problems. The concept of tawarruq between two individuals is found in early jurisprudential literature, which has been discussed by the early jurists. This transaction is nowadays being used by many Islamic banks for liquidity management and as a mode of financing, Contemporary jurisprudential Academies have declared it legitimate. Twarruq is not preferred in its both individual and Institutional forms. However, jurisprudential academics have given conditional permission for tawarruq . Their view seems to be correct. With regard to the said context the view of the jurisprudential academies along with their arguments has been reviewed in this piece of literature with respect to their historical evolution.