 In this module, we shall study a rather controversial Islamic mode of finance called Tawarrukh. Tawarrukh is a controversial Islamic mode of finance because many observers and industry analysts believe that it gives rise to a finance facility which is quite close to a conventional interest-based finance facility. We would look at the use of Tawarrukh as a personal finance facility offered by quite a few Islamic banks in different parts of the world. Thankfully, this product is not being offered in Pakistan. However, almost all the countries in the Middle East, especially in the GCC barring Oman, they offer personal finance products based on Tawarrukh. And there is a need for this kind of product. As you know that all of us, we want to have access to cash. And it's not only a matter of having, a matter of just wanting to have access to cash, rather there is a need for this one. And hence, having access to cash is considered as necessity. Islamic banking and financial products, they do not offer cash in the form of financing. Rather, the emphasis in Islamic banking and finance is to finance real activities, trade activities, financing businesses, etc. This limitation is taken care of by the help of a synthetic structure which is called Tawarrukh. Let us look into the details of a Tawarrukh-based personal finance product. Of course, as I said, there is a customer in need of cash and there could be a genuine need for cash. For example, if I have to pay a bill, if I have to pay an electricity bill, if I have to pay for my sons or daughters' university education and I happen to be short of money, so I need to have this cash, I must go to a bank and seek for a loan. Conventional banks are very happy to do so. So if I go to a conventional bank, a conventional bank would be willing to lend on the basis of interest. However, if this is against my personal beliefs, then I would not like to have access to this interest-based loan offered by a conventional bank. Rather, I would like to go to an Islamic bank and would seek some financial help. Islamic bank, which is not offering a Tawarrukh-based product, would ask me this question, what do you need this cash for? And if I say that I need this cash for something which is not financed by the bank, the bank would say, no, sorry, we are not in a position to help you. The Islamic bank is willing to finance a purchase. For example, when we look at Meezan Bank's website, it would say we offer car financing. We offer home financing. We offer financing of this type. We offer financing on some durables. But there are so many activities which are not listed there and the bank may not be willing to accept your application. The customer in that case would be in need of cash. How to cater for this need? Tawarrukh is a solution. I like the Tawarrukh from this viewpoint because it fulfills an economic need. However, I do not like it like so many other industry observers because it is very close to the spirit of an interest-based loan transaction. Having said that, it serves a real economic need and it serves this need in a Sharia compliant way. So, let us see how it works. So, it is me, the customer. I am in need of cash. I go to an Islamic bank and I seek personal finance based on Tawarrukh. The bank is very happy. The bank says, we will have to do a trick for you to have access to this cash. And that is based on a few trade-based transactions. So, for us to transfer the cash into your account with us, bank account or another bank account with another bank. We will have to buy a commodity from a commodity broker. In case of London, London Metal Exchange is used for this purpose. The bank would buy a commodity mostly aluminum, in some cases copper, from a commodity broker on spot and would pay the price and the commodity would be then in the ownership of the Islamic bank. Islamic bank would then sell that commodity to the customer on a deferred payment basis. Deferred payment murabha basis, for example. In this way, the bank would be transferring the ownership of the commodity X to the customer and the customer will have to pay the price in easy installments. And this price agreed between the customer and the bank would be higher than the price the bank paid to the commodity broker one. Once this commodity has come into ownership slash possession of the customer, customer who is in need of cash would sell this commodity through another commodity broker to for its spot price P and this is the amount the customer is looking for. So, the customer would be generating cash through this whole process. This is known as the varro. This is something a lot of Islamic banks are offering in different parts of the world. In Pakistan, the regulator, state bank of Pakistan does not allow this kind of Islamic mode of finance. The varrook, although it has its usage, however, I must say that this is a compromised solution in an environment where people are looking for having access to cash. It is a product which is attracting a lot of attention and its usage in Islamic retail banking is increasing. As I said, in case of Pakistan, the varrook on a retail level is not allowed, hence Islamic banks in Pakistan are not using this Islamic mode of financing, which is rather considered as controversial.