Tawarruq and Its Ruling

Authored by Dr. Muhammad Zia-ur-Rahman Azmi (رحمه الله)

Definition of Tawarruq:​

Tawarruq refers to a transaction in which a person buys goods on credit and then sells them for cash to a third party (not the original seller). The objective is to obtain liquid funds while agreeing to pay the deferred price of the goods to the original seller over time.

Ruling on Tawarruq:​

According to the majority of scholars, Tawarruq is permissible as long as the following conditions are met:

1. The goods must be sold to a third party and not resold to the original seller, as selling back to the original seller would constitute Bay’ al-‘Inah, which is prohibited.
2. The buyer must take possession of the goods before reselling them.

This permissibility is grounded in the principle that the transaction is free from any direct involvement in riba (interest). The purpose of Tawarruq is to meet financial needs without resorting to usury.

—Referenced from the Permanent Committee for Islamic Research and Ifta (Al-Lajnah Ad-Daimah), Fatwa No. 19297.

Conclusion:​

Tawarruq is a permissible financial mechanism in Islam, provided it adheres to the outlined conditions and avoids any usurious practices.