Monetization (Tawarruq) - Appendix B (The Shariah Basis for the Standard)

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1. Shari ’ah Standard No. (30): Monetization (Tawarruq) Appendix (B) The Shari’ah Basis for the Standard ■ Differentiation between Monetization and ’Inah with regard to permissibility and prohibition stems from the fact that, contrary to the former, the latter is a trick for practicing Riba (usury). ’Inah takes place between two parties who are in fact a borrower and a lender. The lender sells the commodity to the borrower for a deferred price and buys it back from him for a less price payable on spot. The majority of the Fuqaha subscribe to prohibition of ’Inah and permissibility of monetization, except Ibn Taymiyyah and Ibn Al-Qayyim who consider monetization as prohibited or worthy of aversion. ■ Permissibility of constructive receipt of the commodity has already been catered for in the Shari’ah Standard No. (18) on Possession (Qabd) and the Shari’ah Standard No. (1) on Trading in Currencies. ■ Permissibility of monetization transactions that observe the Shari’ah controls indicated in this Standard can be traced in the texts of the Qur`an and the Sunnah that permit sale transactions. It has also been confirmed by two resolutions issued by the Islamic Fiqh Academy of the Muslim World League,(2) and the Standing Committee of the Supreme Board of Shari’ah Scholars of the Kingdom of Saudi Arabia (Fatwa No. 19297), as well as the Fatwas of several Shari’ah Supervisory Boards. Therefore, monetization is an exit for avoiding Riba rather than a trick for performing it, as it is usual(2) Resolution of the 15th Session which imposes no condition other than that Monetization should not be performed like ’Inah. Also, the Resolution of the 17th Session which comprises other conditions (well-observed in this standard) most important of which is non-commitment of the bank to become the agent of the client in selling the commodity which “makes Monetization similar to ’Inah” – using the same words of the Resolution and non-violation of the condition relating to receipt of the commodity: (the Resolution here did not impose actual receipt only, similar to what it did in its 11th Session where it considered legal receipt to be sufficient in currency exchange, which requires more controls than sale transactions). 764
2. Shari ’ah Standard No. (30): Monetization (Tawarruq) ■ ■ ■ ■ ■ ■ ly practiced by those who do not want to be involved in interest-based borrowing. It has been reported by Abdullah Ibn Al-Mubarak(3) that ’A`ishah (may Allah be pleased with her) practiced it. Prohibition of joining together the contract for purchasing the commodity and the contract for selling it is justified by the fact that joining them together would impose a commitment on the client to sell the commodity right away. Hence, such immediate transfer of the ownership of the commodity may not enable the client to receive it. This is again the same reason for prohibition of agency-related commitments. Permissibly of resorting to agency of the Institution when the client, by virtue of law, cannot sell the commodity directly, is meant to safeguard the deal from being nullified by the law. The ruling that the Institution shall provide detailed information about the commodity to the client aims at preventing fictitious transactions and helping the client to obtain liquidity. Such requirement holds true whether the commodity in question is a commodity, a car, shares of a company, international goods, or local goods. The latter are more suitable for monetization due to the easiness of ensuring their existence, and the chance available to the client to actually hold them if he so desires. The ruling that the Institution shall provide the client with a full description or a sample of the commodity is to ensure that the latter’s act of purchasing the commodity is actual rather than fictitious. Monetization (where the client or the Institution is beneficiary) shall be subjected to strict controls and restrictions so that institutions fulfill the main objectives underlying their presence and the interest of customers to make dealings with them. Principally, institutions have to show strict commitment towards using modes of investment and financing such as the various forms of Musharakah (Partnership) and exchange of goods, usufructs and services that conform to the very nature and basic activities of Islamic banking. Hence, imposition (3) Al-Azhari Al-Shafi’i, “Al-Zahir” (P. 216); and “Al-Fa`iq Fi Ghrib Al-Hadith” [2: 108]. For permissibility of Monetization see also Al-Mardawi, “Al-Insaf ” [4: 250]; “Kashshaf AlQina’” [2: 447] and [3: 185]; “Al-Mughni” [4: 127]; Al-Sarakhsi, “Al-Mabsut” “Al-Mabsut”,, [11: 211]; and Al-Nawawi, “Al-Rawdah” [3: 416]. 765
3. Shari ’ah Standard No. (30): Monetization (Tawarruq) of controls and restrictions on monetization would curb any tendency for expanding monetization to the extent that jeopardizes the extensive use of the original modes of investment and financing. Therefore, Institutions shall not use monetization except in the limited scope defined in this Standard. They shall also restrict the use of monetization to the cases of clients whose transactions cannot be disposed of through other modes of financing and investment such as Musharakah, Mudarabah, Ijarah, Istisna’a and the like. Monetization may also be used as a means for helping the clients to dispose of their previous interest-based debts, after ensuring that they have developed genuine intention not to deal in usurious transactions any more. 766