What is Organized Tawarruq?
Organized tawarruq is a transaction where a person buys a commodity from a financial institution on credit, then sells it for cash to a third party (often the same institution) to obtain liquidity. It is commonly used as an alternative to riba-based loans, but scholars differ on its ruling. Proponents deem it permissible under certain conditions, while opponents view it as a riba trick because it ultimately achieves a loan with interest disguised as trade.
Scholarly Positions on Tawarruq
The Islamic Fiqh Academy and the International Islamic Fiqh Academy have permitted organized tawarruq provided the commodity is real, possession is actual, and there is no pre-agreement to resell it to the original seller. However, the Senior Scholars Council in Saudi Arabia prohibited it in 2024, stating it leads to the same outcome as riba. This divergence reflects a deep debate between necessity and stratagem.
Challenges in Digital Application
In the digital world, tawarruq becomes more complex. Digital assets like cryptocurrencies may not satisfy the requirement of real ownership or possession. Some platforms sell digital tokens and then repurchase them automatically, raising doubts about the genuineness of the transaction. Any surplus paid by the customer amounts to clear riba if no real commodity exists.
Islamic DeFi's Stance
Islamic decentralized finance projects seek to avoid illicit tawarruq using AI and transparency. Smart contracts ensure that the commodity is received and not resold to the original seller. However, some see these solutions as creating new digital stratagems, warranting cautious scholarly scrutiny.
How Qist Implements This
Qist applies the seller-owns-asset principle: the platform purchases a digital asset (e.g., a token) and sells it to the client on credit, then the client sells it freely on the market without Qist's involvement. No pre-agreement to resell exists. USDC is used for transparency. Surplus is returned, a 3-day grace period is given, and fees are only 2%. This model avoids riba trickery by ensuring real ownership and possession.
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Educational content, not financial advice