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Friday, 19 March 2010

From Brunei - Quest for the ‘true Islamic economy'

AS THE Islamic finance market grows, debates remain on some of the Islamic financial structures which some scholars spurn for being too close for comfort to conventional finance products. The Brunei Times speaks with Sri Anne Masri, a local Islamic business consultant, about one of these controversial products, tawarruq, which is a subject of debate among scholars.

For those of us who are unclear about what tawarruq is, could you please elaborate?

Tawarruq is being used today as either a liquidity facility, also known as inter-bank placement, or a credit facility, and is a highly profitable business. There are a lot of debates on the issues whether Islamic banks should abandon tawarruq concepts like that done with the murabahah in the past. If we analysed the banking products, tawarruq in some forms, are being practiced in Brunei under different names, whether we realise it or not.

Why is this product controversial?

In April 2009, the Organisation of Islamic Conference Fiqh Academy ruled that organised tawarruq is not permissible, due to the elements of deception that leads to riba (interest or usury). … From the Islamic jurist point of view, the issue on tawarruq is just the “tip of the iceberg”. The Islamic banking industry must seriously differentiate itself from conventional banks, not just by replicating conventional products. Conforming or replicating to the ways of the conventional debt finance through legal tricks and ways to evade syariah restrictions epitomises the growing frustrations in truly defining the “true Islamic economy”. The industry must always make sure that in its goals to expand the market share, it does not fall into the trap of perpetrating mischief in the society, or mafasid. Organised tawarruq may result in the creation of a debt-based society.

How can Islamic banks be more aware of the way organised tawarruq works and be more responsible in their products and services?

Islamic banks should be more responsible in their marketing and ensure that we must not fall into the trap of promoting secular perspectives of “buy now pay later” through debt as a first resort, because this can lead to financial disaster that we had before. The customers should be transparently educated with the potential downside of debt and highlight that syariah allows debt only as a last resort and when there is a genuine need. However, Islamic institutions has evolved for more than 30 years and the market size has grown. It is high time for Islamic bank to come up with products which are based on mudarabah and musharakah structures. It does not mean that we have to abandon the existing structures but as least work towards minimising the use of tawarruq and maximising musharakah and mudarabah transactions.

Do you think this will be easy for banks and institutions to do to stay afloat in a market as small as Brunei?

Maybe these migration is easy in theory rather than in practice. However, the blueprint of transitions still should be well crafted by the stakeholders, in terms of supervision and regulations of the new system. All these should be addressed in consultations with the syariah scholars, economists, regulators, Islamic bankers, and other relevant bodies. The migration should be gradual and practical towards equity based model, taking into account the challenges that the Islamic bank and customers are facing based on substantiated market research.

In your opinion, do you think that tawarruq is syariah-compliant?

Unfortunately, there is no right or wrong answers to these issues or debate. We face similar conundrums in life. For example, a knife can be used harmlessly or harmfully to kill someone. We should then always weigh the benefits, or masalih, of the subject matter against the mafasid, that it may cause. If the masalih, outweighs the mafasid, or the mafasid is containable, then it should be permissible and likewise. The way forward for Islamic banks to grow its market size is by developing products through innovations with deep understanding of syariah and the trends in the market and balancing it with the objective of malahah, without falling into the trap of mischief.

(The Brunei Times)

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