Possible applications of Tawarruq (commodity Murabaha) as a cash financing tool in Islamic Banks Institutions in Somalia

Abstract

Purpose – This paper aims to examine the acceptability of tawarruq (commodity murabaha) as a cash financing tool in Somalia. 

Design/methodology/approach – this study uses two original selected constructs of relative advantage, and compatibility from diffusion of innovation theory (DOI) and three additional constructs customer awareness, the need for tawarruq and Role of Shariah scholars. A total of 144 questionnaires were distributed among the participants of the study. The survey was conducted in Somalia, with respondents of Islamic banks customers. The DOI theory's theoretical model was put to the test using structural equation modeling.

Findings – The findings show that relative advantage, compatibility, and the need for tawarruq have a positive and significant influence on usage of tawarruq product as a cash financing tool, whereas customer awareness and role of shariah scholars has an insignificant influence on adoption of tawarruq as a method of cash financing.

Practical implications – The findings of this study can be beneficial to all Islamic financial institutions in Somalia by applying tawarruq contract to facilitate cash financing.

Originality/value – This research is a pioneering attempt to examine applicability of tawarruq product as a cash financing tool by using diffusion of innovation theory (DOI) as a base line theory, and it presents a unique contribution to the field with regard to Somalia and also this study shed lights on the appetite of Islamic banks’ customers of tawarruq as a cash financing method.