A fact of life is that sometimes people need cash for certain expenses and in this day and age it is not always easy to get an interest-free loan from relatives or friends especially if the amount required is large. In such scenarios the best option currently available in some markets is Tawarruq using permissible shares.
Our Sheikh Saad Alkhathlan, a former member of the Council of Senior Scholars in KSA and Shariah Board member at Alrajhi Bank, mentions in his book – لطائف الفوائد – that:
𝘛𝘩𝘦 𝘣𝘦𝘴𝘵 𝘸𝘢𝘺 𝘵𝘰 𝘰𝘣𝘵𝘢𝘪𝘯 𝘤𝘢𝘴𝘩 𝘧𝘳𝘰𝘮 𝘣𝘢𝘯𝘬𝘴 𝘸𝘪𝘵𝘩𝘰𝘶𝘵 𝘧𝘢𝘭𝘭𝘪𝘯𝘨 𝘪𝘯𝘵𝘰 𝘚𝘩𝘢𝘳𝘪𝘢𝘩 prohibitions 𝘪𝘴 𝘛𝘢𝘸𝘢𝘳𝘳𝘶𝘲 𝘪𝘯 𝘵𝘩𝘦 𝘴𝘩𝘢𝘳𝘦𝘴 𝘰𝘧 𝘱𝘦𝘳𝘮𝘪𝘴𝘴𝘪𝘣𝘭𝘦 𝘤𝘰𝘮𝘱𝘢𝘯𝘪𝘦𝘴, 𝘥𝘶𝘦 𝘵𝘰 𝘵𝘩𝘦𝘪𝘳 𝘤𝘭𝘢𝘳𝘪𝘵𝘺 𝘰𝘧 𝘰𝘸𝘯𝘦𝘳𝘴𝘩𝘪𝘱, 𝘱𝘰𝘴𝘴𝘦𝘴𝘪𝘰𝘯 𝘢𝘯𝘥 𝘴𝘱𝘦𝘤𝘪𝘧𝘪𝘤𝘢𝘵𝘪𝘰𝘯. (𝗼𝘄𝗻 𝘁𝗿𝗮𝗻𝘀𝗹𝗮𝘁𝗶𝗼𝗻).
This product can be risky though and quite a few Islamic Financial Institutions have moved away from it. Share prices can fluctuate drastically and as the IFI is required to purchase and possess the shares before selling them to the customer on a Murabaha basis, it is exposed to this price risk although there are certain ways that this can be mitigated.
For the customer the risk is that after the shares have been purchased from the IFI and transferred to them, if the customer does not sell the shares immediately, the share price can go down leading them to eventually having to sell the shares for less than the cash amount that they had initially needed from the IFI.
However, on the other hand, the share price may also go up, and if the customer waited and sells at the higher share price, they would benefit as they would get more cash than they had originally needed from the IFI.
