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Tawarruq
Practical Law Glossary Item 0-500-7077 (Approx. 2 pages)
Glossary
Tawarruq
Also known as a reverse murabaha. An Islamic finance technique used to provide working capital in compliance with Sharia. In a tawarruq transaction, a buyer (borrower) buys an asset (typically a freely tradeable commodity such as platinum or copper) on credit from a lender on a deferred payment basis and then immediately resells the asset on the spot market for cash to a third party. Following this transaction, the:
- Borrower has the funds it needs.
- Borrower has an obligation to pay to the lender the original purchase price of the asset (usually the cost of the asset plus a profit element).
- Lender has made a profit on the transaction.
For more information on tawarruq and Islamic finance more generally in the US, see:
For more information on Islamic finance in the UK, see Practice note, Islamic finance: UK law overview.