Malaysia's RHB launches Islamic tawarruq product

KUALA LUMPUR Aug 12 (Reuters) - Malaysian sharia bank RHB Islamic launched an Islamic tawarruq financing instrument on Wednesday that uses telecommunication airtime as its underlying asset.

Tawarruq is an asset sale to a purchaser with deferred payment terms. The purchaser then sells the asset to a third party to get funds.

The structure allows Islamic banks to create financing transactions which involve specific assets, fulfilling Islam's demand that deals must involve real economic activity.

"In the past, commodities such as precious metals and crude palm oil have been used as the intermediary asset for tawarruq," RHB Islamic said in a statement.

"Due to its nature and the environment that it operates, it presents a barrier for a wider application of tawarruq. The commodity requires huge storage and logistics cost, and is subject to price and forex fluctuations as well as governed by its spot market regulations."

Tawarruq is widely used by Islamic banks but there has been recent debate about the permissibility of some of its forms under the sharia.

Industry body the International Council of Fiqh Academy had earlier ruled organised and reverse tawarruq to be "a deception" that tries to disguise the use of usury.

Several prominent sharia scholars, including Sheikh Nizam Yaquby and Mohd Daud Bakar, have disagreed with the Fiqh Academy.

RHB Islamic is the sharia banking arm of Malaysia's fourth-largest lender RHB (RHBC.KL). (Click on [ID:nISLAMIC] for more Islamic finance stories and ISLAMIC for a speed guide) (Reporting by Liau Y-Sing; Editing by Kim Coghill)