What does "tawarruq" mean? And why does the bank use it?

Tawarruq is a method of obtaining liquidity through a chain of buying and selling transactions involving a commodity: you buy the commodity on credit and then sell it to a third party for cash, thus obtaining the cash.

Steps

1. Therefore, its structure differs from a direct cash loan.

2. The most important questions are: Is there a real commodity involved?

3. Who bought it?

4. Who sold it?

5. And is the final sale to a third party truly valid?

6. Because the sequence of steps is the core of the process.

Source

• AAOIFI — Sharia Standard 30: Monetization (Tawarruq)