."Tawarruq, its issues and its practical application in Islamic Banks"

Abstract

Islamic banking system has gained good image and popularity since the last two decades and drew the attention of all banking and finance sector industry around the world and selected as a solution for the current economic problems, because every other system has failed in the solution of world's financial problems in the previous few decades. There are many new products being introduced as an alternative to conventional ones. One of them is "Tawarruq". The problem of liquidity risk management is very sensitive in the banking system. Tawarruq finance has been the most widely used form of liquidity management instrument to date. The following paper also discussed an important mode of finance which is named"Tawarruq"We have discussed its definition, approach, scope, its need in Islamic Banking, and its application in Islamic Banks. It will discuss also the similarities and differences between "Tawarruq" and "Inah". And application of Tawarruq for liquidity risk management and how it works. In this paper will be discussed the answers of objections which target Tawarruq in the light of sharia. Therefore, analysis about Tawarruq is very essential and many studies have been done on it. We have concluded that Tawarruq is a permissible mode of Finance.