Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Circular No. (60/2020)

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

Subject: Tawarruq Product

In the context of the Palestine Monetary Authority's and the Supreme Sharia Board'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 Shariah rulings, and aiming to organize and unify the Shariah principles and controls for Islamic Banks' dealings with the Tawarruq product, and based on the decision of the Supreme Sharia Board, we present the following:

First: The Tawarruq Product:

It is the purchase of a commodity on a deferred, negotiated price or on a cost-plus basis (Murabaha), and then selling it to someone other than the original seller to obtain cash on a spot price.

Second: Cases in which dealing with the Tawarruq product is permitted:

Dealing with the Tawarruq product is permitted in cases that cannot be financed through other financing forms, and is limited to the following cases:

1. Repayment of existing debts of customers who are clients of Islamic Banks from other banks.
2. Repayment of contractors' obligations for labor 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. Cash dowry needs for marriage.
5. Medical and educational needs if they are from institutions outside Palestine and it is impossible to use the Ijarah (service leasing) product.
6. Repayment of university students' debts who have defaulted on payments and whose university certificates have been withheld due to the debts.

Third: Bank Responsibility:

1. Compliance with the Shariah controls specific to the Tawarruq product according to Shariah Standard No. (30) issued by the Accounting and Auditing Organization for Islamic Financial Institutions.
2. Not exceeding the financing granted under the Tawarruq product by more than 10% of the total existing financing portfolio.
3. Providing the necessary supervisory environment for dealing with the Tawarruq product, including:
   • Preparing and approving work policies, procedures, contracts, and forms specific to the product.
   • Necessary systems and programs.
   • Conducting training courses for employees.
4. Any dealing with the Tawarruq product outside the cases specified above requires obtaining prior approval from the Palestine Monetary Authority.

Therefore, all banks wishing to deal with the Tawarruq 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 being approved by the Shariah Supervisory Board of the Bank.

Please accept our highest respect and appreciation.

Supervision and Inspection Department Palestine Monetary Authority

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