Tawarruq-based term deposit
A fixed-return term placement in which the customer sells a commodity to the bank on deferred payment.
A tawarruq-based term deposit uses commodity sales to give the customer a fixed return on a term placement. The customer, usually acting through the bank as agent, buys a commodity for cash and sells it to the bank at a higher price payable at maturity, and the bank then sells the commodity for cash. Bank Negara Malaysia's tawarruq policy document illustrates this structure, and the debate over organised and reverse tawarruq applies to it as well.
Sources
- Bank Negara Malaysia, Tawarruq policy document, 2018: illustration of a deposit placement using tawarruq
- International Islamic Fiqh Academy, Resolution No. 179 (19/5) on tawarruq, 2009 (Arabic)
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
TawarruqBuying an asset on deferred payment and selling it to a third party for cash, to raise liquidity. Its organised form is contested.Commodity murabahaInterbank and treasury deals in which commodities are bought and sold on deferred payment to place or raise short-term funds.Islamic depositA deposit product whose principal the Islamic bank is obliged to repay, as distinct from an investment account that shares risk.