The Application of Bay’ Al-Tawarruq in Islamic Banking Institutions in Malaysia: A Study of Bank Muamalat Malaysia Berhad

Abstract Purpose – A study of Islamic banking products, especially bay’ al-tawarruq transactions, demonstrates that the purpose of these transactions is to provide liquidity to the customer, such as personal financing, working capital expenditure, cash lines and credit cards. However, as the industry expands, the industry is innovating to extend products to include an investment and deposit instrument that provides a fixed return to the customer. As the second fully-fledged Islamic bank in Malaysia, Bank Muamalat Malaysia Berhad (BMMB) offers products based on the bay’ al-tawarruq concept. Methodology/approach – This study investigates the original principles of the bay’ al-tawarruq contract and its current applications in BMMB. Findings – The study found that the bay’ al-tawarruq contract is being adopted as an alternative to the bay’ al-‘inah contract, especially for financing-based products offered by BMMB. Originality/value – This is an attempt to study the application of Tawarruq contract in Bank Muamalat’s product offerings based on the process and mechanism of Bursa Suq al-Sila’ (BSAS).