Commodity Murabaha is an item intended to encourage loans to a client who need money to pay

for different requirements. In these transaction, banks sell commodities to the customers on
installments. Later the customers sell those commodities on the spot in order to receive cash.
Here, the client isn't keen on using the bought commodities or profiting by it, rather he moves
toward it as a way to encourage the accomplishment of liquidity. Tawarruq, a well-known
transaction, is also known as Murabaha commodity. Basically, Tawarruq is series of sale contract
where a buyer purchases an asset from seller on installments, and afterwards, sell that asset to
third party on a lesser price than installments in order to receive cash. Currently, Islamic Banks
records Tawarruq on the both side of balance sheet, for deposit and financing, addressing
different liquidity needs of transacting parties. On financing side, Islamic Banks simply purchase
a commodity and then sell it to the customer on installments. Later, the customer sell that
commodity to the other bank, to receive cash. Tawarruq is somehow a controversial commodity
because, the buyer’s intention while purchase of that asset is not for his utilization or ownership.
The beliefs of Islamic Scholars over Tawarruq differ from one another. Some scholars believes
that these transactions are not Sharia-Compliant. They argue that any real economic activity is
not present in this transaction which creates interests, and interest is forbidden in Sharia.
Whereas, the scholars who accept these transactions valid, argues that Tawarruq is based on two
authentic legal contracts, one Murabaha and other is sales. But despite this controversy, many
Islamic banks, including the banks of United Arab Bank, QNB Al Islamic, Standard Chartered of
United Arab Emirates, and Bank Muaamalat of Malaysia, use Tawarruq commodities. Generally,
products like gold, silver, barley, salt, wheat, and dates are not permissible in Tawarruq. But,
many Islamic bank has been using the London Metal Exchange (LME) as platform for Tawarruq
in the light of the fact that metal is not a part of its commodity exchanges. Products like platinum
crude palm oil, wheat and cotton are considered as freely tradable product because these
products are Sharia-compliant. But some of the Islamic Banks and Central Banks may prefer
using the suitable local commodity for transaction purposes.