What Is Tawarruq? Islamic Personal Financing Explained
Tawarruq is one of the structures Islamic banks use to provide cash financing without lending money at interest.
How it generally works
The bank buys a commodity and sells it to you on deferred payment at an agreed price. You then sell the commodity to a third party and receive cash, while repaying the bank in installments.
Why banks use it
It allows personal financing within a structure Islamic banks consider Shariah-compliant, based on a real sale rather than a loan with interest.
How it differs from a conventional loan
Read our guide to the difference between Islamic and conventional financing.
A note on opinions
Scholars and Shariah boards hold different views on certain structures. Each Islamic bank follows its own Shariah board, so ask which structure is used.
What to ask your bank
The contract used, the total payable, the fees and the early settlement terms.
Common questions
Is tawarruq the same as murabaha?
They are related but not the same. Murabaha is a sale at a disclosed profit, while tawarruq involves a further sale to obtain cash. Your bank can tell you which applies.
Do I handle the commodity myself?
Usually the bank or its agents arrange the transactions on your behalf under the contract.
Rates, fees and requirements are set by each bank and can change. Not sure how this applies to you? Request a call and we will go through it together.