SHARIAH PRINCIPLES AND MITIGATION IN

ISLAMIC BANKING PRODUCTS.(TAWARRUQ

AND WADIAH YAD DHAMANAH)
PREPARED BY:
MOHAMED HANEEF SULAIMAN BIN MOHAMED HALEEM 012022091615

IMANNUL HAQUE BIN SYAFARIAN 012022090554

UMAR ABDUL AZIZ BIN AHMAD SHUKRI 012021070148

Prepared for: Sir Sharullizuannizam bin

Salehuddin
 CONTENT

01 02 03 04

Introduction Analysis Issues Conclusion and

Recommendation
INTRODUCTION(TAWARRUQ)
Purpose of this research is to examine the Shariah concerns involved
in the implementation of tawarruq contracts in Islamic Profit Rate
Swap (IPRS) instruments in Malaysia.
Makes suggestions for changes to make sure that the Tawarruq
Contract is implemented in accordance with Shariah rules and goals.
Implementing the IPRS is meant to control the discrepancy between
the income flow from the assets and the expenses or funding costs
in the liability sectors.
Recommends improvements to address dual agency issues, establish
guidelines for commodity purchase and sale agents, and ensure all
transactions are conducted through a regulated platform.
ANALYSIS OF PRINCIPLE OF ISLAMIC BANKING
TRANSACTION (TAWARRUQ)
Fundamental idea behind Tawarruq is that a customer buys a good on credit from a
seller and then sells it to a third party for cash, which they then use to reimburse the
first seller.
In Tawarruq, high-value goods like gold, silver, or oil are often the products being
purchased and traded.
The commodity utilised in Tawarruq must be a tangible good with a fixed value that
can be independently checked and approved by all parties.
The bank may impose tight procedures for confirming the legitimacy of the commodity
being used in the transaction, require collateral or a guarantor to secure the
transaction, or both.
STUCTURE AND MODUS OPERANDI
(TAWARRUQ)
 CONT..
The Islamic Financial Institution (IFI) buys commodities on a
cash basis from the commodity market.
The identified commodity will subsequently become IFI's
property.
The other party will receive ownership of the commodity.
The commodity will subsequently be sold to the client by the
other party in the commodity market on a cash basis.
IPRS STRUCTURE
 CONT..

At the first stage, a client will purchase a commodity through a bank

from broker B in cash.
Subsequently, the bank will repurchase the commodity from the client
with a cost price value + KLIBOR rate (assuming KLIBOR with a
variable rate of 2.5%).
The bank will subsequently resell the commodity at the cost price to
broker A.
 ISSUES
Profit gain rather Tawarruq contract dupes
people into approving Riba by
Dual agency in Islamic Profit
than hedging making Islamic Profit Rate Rate Swap products
Swap instruments resemble
Bay Al-Inah
The bank effectively
the contract must fulfil represents the client when
all of its circumstances, To address the bay al-inah a tawarruq contract is
issue, which includes items
including those connected being traded back to the
established in Malaysia
to the agreement's sighah, original seller, the Bursa using IPRS to purchase
contract participants, Malaysia Islamic Services has commodities. In order to
stated that commodity sales
goods, and pricing to suppliers must be done at
resell the goods to a third
contract of sale setup random. party, the bank acts as
has to be spot-based in Permitting the riba because the client's representative
it includes numerous sales of
order for the shipment of an identical asset indirectly
Both processes allow the
commodities or payment making it harder to figure bank to profit from the
to be considered legitimate out the real purpose of this commodity sale price
contract
 ISSUES AFFECTING ISLAMIC BANKS

regulations are imposed on Bay' al-Inah and other problematic transactions, which affects the success and
competitiveness of Islamic banks. Alternative product production may become more expensive as a result of these
restrictions, which may also limit the types of capital that banks may provide.
The bank represents the consumer in the selling and purchase of commodities
If the consumer had signed the commodity resale agreement through the agent at the early of the transaction, even
before receiving bought commodity.
when a customer purchases a product from a bank using deferred payment will as well affect Islamic banking. since
theoretically the customer seems to purchase and sell a commodity from the other party, which is the bank, but in
reality, the bank is the client's representative
There is some scholar that raised concern about tawarruq usage in personal financing, this will automatically
reduce the demand for customer go for tawarruq which as well will cause the losses of profit to the Islamic bank
 CHALLENGE FOR THE COMPANY IN MANAGING THE
ISSUE
When conducting business in the Islamic banking industry, certain rules and guidelines
must be observed. They must follow the guidelines set out by regulating organisations
like the Accounting and Auditing Organisation for Islamic Financial Institutions
(AAOIFI) and the Islamic Financial Services Board (IFSB)
If a business violates the IPRS tawarruq, it may be subject to regulatory scrutiny or
penalties.
In Malaysia Islamic banking are not using (AAOIFI) while the Islamic banking in Malaysia
will refer based on Malaysia Accounting Standards Board (MASB)
Islamic banks contend that the tawarruq should involve the actual sale and purchase of
assets rather than a covert financing arrangement.
To represent valid profit rate exchanges and ensure openness and equity for all parties,
Islamic banks must properly structure the IPRS contracts.
 CONCLUSION AND RECOMMENDATION

Mandating usage of BSAS by institutions and clients when making commodity purchases may aid in
resolving the fundamental asset issues and preventing the creation of bay al-inah. Because every
transaction takes place on the BSAS platform is governed. According to my understanding the
recommendation I found are there are need of an agency that can manages the commodity
purchase from BSAS either and services that could make the clients to do the commodity
transaction independently.

Appoint BSAS, as the objective party that does not speak on behalf of any commodities supplier or
banking institution. Customer may coordinate their commodity purchases with the agency in order to
carry out the terms of tawarruq. Another suggestion is that banking institution work with BSAS
to help in the form of facilities to consultation services to the clients for conducting commodity
transaction by their ownself.

After obtaining the commodity, clients must first sign the agreement designating the bank as the
agent for buying before sign the agreement for selling. This method is to prevent the qabd
problems, which might arise when the customer is not owning bought goods.
 CONCLUSION AND RECOMMENDATION

As I realized the tawarruq contract take a longer period in order to make profit since bank need
to wait until the customer to fully paid the amount. From the case study that I had made I realized
that the bank should provide more information to the customer that which will help to reduce the
issue about dual agency in tawarrruq as well as issue tawarruq aiming for profit.The additional
information should be such as the overall cost of transaction

Tawarruq help Islamic banking in Malaysia to continue grow as the Islamic bank could make the
profit from giving financing to the customer as well as selling back the commodity once the contract
come to an end. This helps the Islamic bank to get profit from the financing that they gave as well
when selling back the commodity to the marketplace.
INTRODUCTION (WADIAH YAD DHAMANAH)

This study looks at how consumer choices in-store savings wadiah yad
dhamanah are influenced by the quality of the products and the quality
of the services.
Demonstrate that the client's preference for Bank BRI Syariah KCP
Setiabudhi is significantly influenced by the quality of the offered goods
and services.
The study demonstrates that consumer preferences are positively and
significantly influenced by the quality of the product and the service.
BRI Syariah Bank's savings product wadiah yad dhamanah competes
with other savings products and is still in demand by the public.
Because the main goals of BRI Syariah Bank are to avoid interest.
ANALYSIS OF PRINCIPLE OF ISLAMIC BANKING
TRANSACTION (WADIAH YAD DHAMMANAH)
A form of deposit account where a consumer puts money with an Islamic
bank or financial organisation for safekeeping is known as a Wadiah Yad
Dhamanah in Islamic banking.
The bank may invest the money in Shariah-compliant projects like small
company finance or personal financing, but the consumer is not entitled to
any profit or return on their deposit.
The bank is required to maintain the customer's money apart from its own
and to refrain from using it in any way that isn't authorised.
Islamic banks are required to keep thorough and precise records of all
transactions, including deposits, withdrawals, and fees, in order to achieve
this.
STUCTURE AND MODUS OPERANDI
(WADIAH YAD DHAMMANAH)
 CONT..
The deposit receiving party is responsible for the assets'
integrity and can use the money for profit-sharing with
customers.
Quality of service provided by banks includes polite and
friendly staff, good facilities and infrastructure, responsible
service, prompt and precise service, communication,
confidentiality assurance, sound knowledge and skills, and
trust in customers.

in 2017 from the month of
January to August, the
savings wadiah yad dhamanah
in BRI Syariah Bank is
fluctuated.
because there is a lack of
promotion regarding savings
wadiah yad dhamanah and
there are many banks that
has same and comparable
that can compete with Bank
BRI Syariah KCP Setiabudhi
Islamic banks
Hastuti (2013) stated that
the emergence of Islamic
banks in the order of national
banking industry has not
received adequate attention
from people out there.
ISSUES
The Financial Services
Authority, which is the Islamic bank savings and
Jasa Keuangan financing accounts have
Otoritas, their
only reached 16 million, as
companies stated that
in Islamic banking there we know the total amount
was a decrease in of Indonesia’s Muslim
asset, financing, and
population are 150 million,
deposit growth from
September 2012 to which is very big amount to
2013, with growth from compared to 16 million
2012 to 2013. The
market share of
consistently ranged
between 30% and 40%,
and it dropped between
2013 and 2016.
 ISSUES AFFECTING ISLAMIC BANKS

The lack of promotion for savings wadiah yad dhamanah will make customers unsure and
unwilling to maintain their money in the bank. If there is no promotion for wadiah yad dhamanah
savings, the percentage of customers who keep their money in the bank may fall.

, a decrease in assets and financing might have an adverse impact on both the financial health
and liquidity of Islamic banks Customers who deposited funds may withdraw them, leading to
banks to run out of liquidity.

decreased use of Islamic banking products has a ripple effect on the general expansion and
revenues of Islamic banking institutions. Because these institutions depend on deposits from
clients to pay for their operations
 CHALLENGE FOR THE COMPANY IN MANAGING THE
ISSUE

Bank BRI Syariah KCP Setiabudhi not aware about the people out
there whether the marketing of the product is enough for them to
understand and comprehend. Make a campaign is one of the solutions
to overcome these challenges

, the bank must compete with other banks that has a similar
product which is the conventional banks. According to this article,
the writer already stated that the conventional banks are more
diverse to compared with BRI Syariah KCP Setiabudhi
 RECOMMENDATION

SOLUTION TO THE ISSUES OF LACK OF PROMOTION

01 The bank may additionally promote awareness of this savings account by hosting
informative conferences and seminars, as well as providing additional information
about the savings account also the bank can do

.SOLUTION DECREASE IN ASSET

02 spend less money. Cutting cost is one of the actions can be taken by the bank. This
could be accomplished by the bank through cutting employees who work in the bank,
lowering advertising expenses, or bargaining lower vendor charges
 CONCLUSION

Islam really concerned about what we take in daily life. Same goes to the product
we used in the bank we chose. Islam prohibit all the negative elements which
consisting of riba, gharar, and maysir. This is because Islam teach us to not take
advantage on someone. Next, if the bank wants to develop a product, the product
must have benefits that enable people can take advantage on it. According to this
study, the consumer preferences really importance to aware about it. Customer
preferences play a role in storing Wadia Yad Dhamanah savings since they permit
banks to satisfy their customers’ needs more effectively.
THANK YOU
ANY QUESTION ?