Under the Shariah principles of Islamic finance, all financial transactions must be backed by assets. This gave rise to many types of contracts alternative to those practiced in conventional finance, such as sales-based, partnership-based and leasing-based contracts among others. One of the prevalent structures in Islamic financing today is the Commodity Murabahah contract based on the Tawarruq arrangement. Under this structure, commodities e.g., crude palm oil and rubber, make up the underlying asset of the contract by which the lender will buy and sell a commodity to create a financial obligation between the lender and the borrower.

Commodity Murabahah is defined as the purchase commodities on a cost-plus profit basis agreed upon by both buyer & seller and subsequently, the commodity is sold to another commodity trader (third party) with the objective of obtaining cash.

Tawarruq is an arrangement that consists of two sale and purchase contracts. The first involves the sale of an asset by a seller to a purchaser on a deferred basis. Subsequently, the purchaser of the first sale will sell the same asset to a third party on a cash and spot basis.

Commodity brokers play an integral role in facilitating commodity trading and to a wider extent, Islamic financial transactions; whether the trades are executed online or over the phone. They bridge the gap between physical commodity markets and Islamic financial institutions.