 In this module, we will talk about another controversial sale contract. This is called Tawarroq. Like Baye al-Aina, Tawarroq is a controversial sale contract as well and this is not accepted by everyone involved in Islamic banking and finance. However, this is the most widely used contract in some parts of the Muslim world, especially in the Arab world. So, its use is very wide and it is increasing with the passage of time which is a cause of concern for many industry observers. Its use is also in the Sukuk structures, it is also used in liquidity management and in retail banking as well. What is Tawarroq? Like Baye al-Aina, Tawarroq is an arrangement in which a credit facility is prepared. In the case of Baye al-Aina, this credit facility is created with the help of two parties, a buyer and a seller. And the buyer and seller, they enter into two simultaneous transactions in such a way that a credit facility is created. In case of Tawarroq, however, it is a tripartite arrangement. Why this is a tripartite arrangement? Because it fulfills better Sharia requirements if we have a third party between a buyer and seller who would like to have some kind of credit facility with a return. To understand Tawarroq properly, let us look at this figure. There is a bank and of course there is a customer. Customer would like to have access to some cash because the customer is in need of that cash. Now, customer would not like to borrow this money on interest basis. Rather, the customer would like to use a Sharia compliant process to receive some cash now even if he has to pay an additional amount of cash along with this cash in future. This is very close to Riba in terms of its spirit. However, on technical grounds, this is not Riba. Some people take it as a token. What happens in Tawarroq? In Tawarroq, a bank buys a commodity from the market. This could be wheat, this could be aluminum and any Sharia compliant commodity will buy a bank for 100 rupees on cash basis. And this commodity will then sell the customer to the bank on the basis of a deferred payment sale, BEMWajjad. And the price will be 110 rupees which the customer can pay after a while. When the customer has this commodity then the customer will sell this commodity in the market for 100 rupees and fulfill his demand for 100 rupees. What happens is that this commodity is used to offer liquidity and credit facility to the customer. The bank buys a commodity from the market for 100 rupees on cash and sells it to the customer on a deferred payment basis. The customer sells 100 rupees in the market and fulfills his demand for 100 rupees. And after some time, it pays 110 rupees to the bank. This is a very close arrangement of this commodity. But as I said earlier, on technical grounds this is actually based on sale of a commodity. The bank buys a commodity from the market and gives it to the customer on a deferred payment. The customer sells it to the market and fulfills his demand for money. In this sense, even if this commodity is not available but this commodity is Sharia compliant. Some people say that this is not a valid contract. But as I said, if all the requirements of Tawarrukh are fulfilled this is actually a Sharia compliant contract. However, many people believe that even if this is a Sharia compliant contract it is important for the development of Islamic banking and finance to ensure that its use is rather limited in Islamic banking and finance. But this is not the case. In Islamic banking and finance, the use of Tawarrukh is already increasing which is a cause of concern for a number of advocates of Islamic banking and finance. Hence, although this is a useful technique it is important to limit its use in Islamic banking and finance to ensure that Islamic banking and finance remains a credible phenomenon.