Monetization (Tawarruq) - Scope of the Standard

Transcription

1. Shari ’ah Standard No. (30): Monetization (Tawarruq) Statement of the Standard 1. Scope of the Standard This Standard covers the different applications of monetization, whether the beneficiary is the customer or the institution. 2. Definition of Monetization and Its Distinction from Bay’ Al-’Inah Monetization refers to the process of purchasing a commodity for a deferred price determined through Musawamah (Bargaining) or Murabahah (Mark-up Sale), and selling it to a third party for a spot price so as to obtain cash. Whereas ’Inah refers to the process of purchasing the commodity for a deferred price, and selling it for a lower spot price to the same party from whom the commodity was purchased. 3. Mutawarriq (Monetization Beneficiary) 3/1 The Monetization beneficiary may be a customer who purchases the commodity from the Institution and sells it to a third party to obtain liquidity. It may also be the Institution itself when it purchases the commodity from the customer or another Institution and sells it to a third party to obtain liquidity. The controls for both cases are shown in items (4) and (5) below. 3/2 The institution should not perform Monetization for the benefit of conventional banks when it discovers that such banks are going to use the liquidity for interest-based lending instead of Shari’ahcompliant operations. 4. Controls on Monetization Transactions 4/1 The requirements of the contract for purchasing the commodity on deferred payment bases should be fulfilled, for both Musawamah and Murabahah transactions, with due consideration to Shari’ah Standard 758
2. Shari ’ah Standard No. (30): Monetization (Tawarruq) No. (8) on Murabahah. There shall also be a real commodity that the seller owns before selling it. If the process is to involve a binding promise, it shall be from only one party. As regards the commodity sold, it shall not be gold or silver or any type of currency. 4/2 The commodity sold shall be well identified so as to become distinct from the other assets of the seller. This may be done by separating the commodity from the other assets of the seller, or recording the numbers of its identifying documents such as storing certificates. [see Shari’ah Standard No. (20) on Sale of Commodities in Organized Markets, item 4/2/2] 4/3 If the commodity is not made available at the time of signing the contract, the client shall be given a full description or a sample that indicates the quantity of the commodity and the place of its storage, so that his act of purchasing the commodity becomes real rather than fictitious. In this sense, using local commodities for Monetization is more preferable. 4/4 The commodity shall be actually or constructively received by the buyer, and there remains no further condition or procedure for receiving it. 4/5 The commodity (object of Monetization) must be sold to a party other than the one from whom it was purchased on deferred payment basis (third party), so as to avoid ’Inah which is strictly prohibited. Moreover, the commodity shall not return back to the seller by virtue of prior agreement or collusion between the two parties, or according to tradition. 4/6 The contract for purchasing the commodity on deferred payment basis, and the contract for selling it for a spot price shall not be linked together in such a way that the client looses his right to receive the commodity. Such linking of the two contracts is prohibited whether it is made through stipulation in the documents, acceptance as a normal tradition, or incorporation in the procedures. 759
3. Shari ’ah Standard No. (30): Monetization (Tawarruq) 4/7 The client shall not delegate the Institution or its agent to sell, on his behalf, a commodity that he purchased from the same Institution and, similarly, the Institution shall not accept such delegation. If, however, the regulations do not permit the client to sell the commodity except through the same Institution, he may delegate the Institution to do so after he, actually or constructively, receives the commodity. 4/8 The Institution should not arrange proxy of a third party to sell, on behalf of the client, the commodity that the client purchased from the Institution. 4/9 The client shall not sell the commodity except by himself or through an agent other than the Institution, and shall duly observe the other stipulations. 4/10 The Institution shall provide the client with the information that he or his appointed agent may need for selling the commodity. 5. Controls on Monetization When the Institution Is the Beneficiary 5/1 Monetization is not a mode of investment or financing. It has been permitted when there is a need for it, subject to specific terms and conditions. Therefore, the Institutions shall not use Monetization as a means of mobilizing liquidity for their operations, and exert no effort for fund mobilization through other modes such as Mudarabah, investment agency, Sukuk, investments funds, and the like. The Institution shall resort to monetization only when it faces the danger of a liquidity shortage that could interrupt the flow of its operations and cause losses for its clients. 5/2 The institutions shall avoid proxy in selling the Monetization commodity, even if proxy is to be arranged with a third party. In other words, Institutions shall use their own bodies for selling the monetization commodity, though using brokers for this purpose is permissible. 6. Date of Issuance of the Standard This Standard was issued 1 Dhul-Qa’dah 1427 A.H., corresponding to 13 November 2006 A.D. 760