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2020-01-01

Circular No. 60/2020: Tawarruk Product

The Palestine Monetary Authority and the Supreme Council for Sharia Supervision issued Circular No. 60/2020 to regulate Islamic banks' use of the Tawarruk product, defining it as purchasing a commodity on credit or at a markup and immediately selling it to a third party for cash. The directive restricts Tawarruk to specific unfinanceable scenarios—including debt repayment, contractor payroll, liquidity shortages, marriage dowries, out-of-country education and medical costs, and student defaults—while capping aggregate Tawarruk financing at 10% of a bank's total portfolio. Institutions must adhere to Sharia Standard No. 30, implement comprehensive supervisory controls with approved policies and staff training, and secure prior regulatory approval for any transactions outside the enumerated exceptions.

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Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Circular No. (60/2020)

To all Islamic banks operating in Palestine Date: Wednesday, February 26, 2020

Subject: Tawarruk Product

In the context of the Palestine Monetary Authority's and the Supreme Council for Sharia Supervision's efforts to regulate the operations of Islamic banks, particularly regarding the provision of services and products that meet customer needs and comply with Islamic Sharia rulings, and aiming to regulate and unify the Sharia foundations and controls for Islamic banks' dealings with the Tawarruk product, and based on the decision of the Supreme Council for Sharia Supervision, we present the following:

First: Tawarruk Product:

It refers to purchasing a commodity on credit or at a marked-up price, and then selling it to a third party to obtain immediate cash.

Second: Cases in which the Tawarruk Product May Be Used:

The Tawarruk product may be utilized in cases that cannot be financed through other financing structures, limited to the following:

  1. Repayment of existing debts owed by customers to Islamic banks from other banks.
  2. Repayment of contractors' obligations for worker expenses, emergency services, and salary payments.
  3. Repayment of debts incurred by merchants and companies in cases of liquidity shortage and inability to apply other liquidity instruments.
  4. Needs for cash dowry (Mahr) for marriage.
  5. Medical and educational needs if provided by institutions outside Palestine and if the Service Permit product cannot be used.
  6. Repayment of university students' debts who have defaulted on payments and whose university certificates have been withheld due to the debts.

Third: Bank Responsibilities:

  1. Compliance with the Sharia controls specific to the Tawarruk product in accordance with Sharia Standard No. (30) issued by the Accounting and Auditing Organization for Islamic Financial Institutions.

  2. Ensuring that financing granted under the Tawarruk product does not exceed 10% of the total existing financing portfolio.

  3. Providing the necessary supervisory environment for dealing with the Tawarruk product, including:

    • Drafting and approving work policies, procedures, contracts, and forms specific to the product.
    • Necessary systems and software.
    • Conducting training courses for employees.

  4. Any dealing with the Tawarruk product outside the cases stipulated above requires obtaining prior approval from the Palestine Monetary Authority.

Therefore, all banks wishing to deal with the Tawarruk product are requested to submit a formal application to the Palestine Monetary Authority, including the policies, work procedures, and all forms and contracts related to the product, after their approval by the bank's Sharia Supervision Board.

Please accept our highest regards and appreciation.

Supervision and Inspection Department Palestine Monetary Authority

Note: Ramallah & Al-Bireh Governorate - Palestine P.O. Box 452 info@pma.ps | Fax: +970 2 2415310 | Tel: +970 2 2415251 Gaza - Palestine P.O. Box 4026 Fax: +970 8 2844487 | Tel: +970 8 2825713 www.pma.ps

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