Tawarruq financing is a concoction designed to give Shariah-observant businesses access to modern, mainstream financing.
We touched on this briefly back in July when a controversy developed surrounding tawarruq:
It seems that some Shariah scholars believe that tawarruq is haram because it has deceptive elements and elements of interest included.
(The reality is that almost all aspects of Shariah Finance have deception built-in and many are based on prevailing interest rates, despite great efforts to conceal the connection.)
But tawarruq in particular has come under a great deal of scrutiny lately with fiqh bodies expressing disapproval. This has prompted some Shariah banks to abandon tawarruq. Still others continue to use it, basically ignoring the opinions of some Shariah scholars.
This illustrates the regulatory nightmare created by Shariah compliance in the first place…