The Form of the Tawarruq Issue and Its Ruling

Shaykh Abdul Aziz, we received this message from its presenter, Muhammad Shaher al-Qaumi, who says in it: I was short about twenty thousand riyals, and I did not find a loan, so I went to a man who gives credit on a number of boxes of cloth. He said: After I bought the boxes from him, he said: Put your hand on them. I put my hand on them, and he said: Did you count them? I said: Yes. Then the shop owner, or the one who sold them to me, said: Do you want to sell them in the market, or sell them to the shop owner? The shop owner said: I will concede two hundred riyals from the capital. The shop owner promised me the amount of nineteen thousand eight hundred riyals, and the debtor told me: The twenty thousand becomes upon you an amount of twenty-eight thousand, with monthly installments of such and such. He says: We want to know the validity of this sale and this purchase, may Allah guide you, and is it riba?
Answer: In the name of Allah, the Most Gracious, the Most Merciful. Praise be to Allah, and blessings and peace be upon the Messenger of Allah, and upon his family and his Companions who followed his guidance.
As for what follows:
This issue is called by the jurists: the issue of tawarruq, and it is known among the common people as al-wa'dah. It is when a person needs money for marriage, or to build a house, or to pay off a debt, or something similar, and he does not find someone to lend to him. He then needs to buy goods on credit and then sell them to people for cash, so that he can benefit from the cash. There is disagreement among the scholars regarding this contract. Some of the scholars said: It is not permissible; because it is dirhams for dirhams, and because the intention is dirhams for dirhams. This is narrated from 'Umar ibn 'Abd al-'Aziz and a group of others.
The second opinion is: There is no harm in it, and there is no blame, and it is from the lawful trade that Allah the Exalted mentioned, saying: [al-Baqarah: 282]. This is the correct opinion, and it falls under His saying: [al-Baqarah: 275]. So the correct view is that this transaction, which is the tawarruq transaction called al-wa'dah, is valid in general, but with conditions. Among them: that the seller has taken possession of the goods. He does not sell something that is not with him, with the people. He does not sell except something he has owned and taken possession of in his house, or in his shop, or in the market. Because the Prophet (peace and blessings be upon him) said: , and he said: . So he is not allowed to sell what is with the people, and he and the buyer go to the merchants to get it. No, rather he buys first and takes possession of it. When he has taken possession of it in his house, or in the market, or in his shop, then he sells it. Then the buyer who bought from him does not sell it to the shop owner or to anyone else until he also takes possession of it, until he moves it to the market, or to his house, or to his shop, and then he sells it. By this, it is known that this form which the questioner asked about is not valid. Placing the hand on the boxes is not sufficient, and counting them is not sufficient according to the correct, well-known view of the scholars. Mere counting is not sufficient; it is necessary to take possession, it is necessary to complete the taking of the sold item. For this reason, it is established from the Messenger of Allah (peace and blessings be upon him) that he said: , he said: , and he (peace and blessings be upon him) forbade selling goods where they are bought until the merchants take them to their dwellings. So the merchant is forbidden to sell what is not with him, and so is anyone else from the people until he takes it to his dwelling. Ibn 'Umar said: , and in another wording: .
The summary is that this sale which the questioner asked about is not valid; because he sold what he did not take possession of. The seller sold him something he did not take possession of, and then he sold to the shopkeeper what he did not take possession of, so it is not acceptable. This sale is not acceptable. The seller is entitled only to the dirhams that the shop owner gave him, because they are the price of the equivalent. They are the price of the equivalent, so he gives him the price of the equivalent, or returns to him from the same type of the goods he bought from him. That is, he bought from him a known good and did not take possession of it in the Shariah manner, so he sold it before that, so he has no right to sell it. Its sale is not valid, and at that time it remains in his possession. He must take possession of it and sell it, disposing of it wherever he wishes. The person who gave him the dirhams returns to him only his dirhams. The one who gave him the dirhams returns them to him in kind; because he sold him something he did not take possession of. The person who bought the boxes and the like, such as sugar, raw materials, and the like, the goods remain on his account. He returns their value at that time, or returns them if they exist in their original form to their seller.
The result is that the last sale is not valid; because he sold what he did not take possession of. The first sale is not valid if he sold him something he did not take possession of. But if he had taken possession of it, and moved it to his shop or to the market, it is valid. Because this man did not take possession of either the first or the second; neither of them took possession. So he sold something he did not take possession of, so it is not valid, and the sale is not valid. The seller is entitled only to the dirhams that the last buyer gave him. The last seller, rather the last buyer, gave them; because he bought them from him for cash. So he is entitled to the type of those dirhams that he gave to the owner of the wa'dah, who is the one in need of tawarruq. So if, for example, he bought them from the first one for two thousand, and then sold them to the shop owner for one thousand six hundred, then what is obligatory for him is the one thousand six hundred; because the one thousand six hundred is what he took possession of, so he returns only that. Yes, he returns it to the one he sold the goods to, and the first sale was not valid. Yes.