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Key agreement boost for global Islamic finance

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Points of Essence:

  • Advocating standardisation of Islamic finance legal documentations, the IIFM has issued the benchmark legal documents governing over-the-counter (OTC) Commodity Murabaha transactions. With a growing significance of commodity murabahah as an Islamic money market product for liquidity management purposes, the IIFM Master Agreement for Treasury Placement (MATP) is expected to be adopted by global financial institutions. This is a crucial step in promoting transparency, robustness and consistency in Islamic financial transactions.

Manama: The Bahrain-based International Islamic Financial Market (IIFM) has launched the world’s first-ever standardised Master Agreement in Islamic finance. The IIFM Master Agreement for Treasury Placement (MATP) can be used by financial institutions across the globe for their over-the-counter (OTC) Commodity Murabaha transactions.

The MATP comprises of standalone Master Murabaha Agreement, Master Agency Agreement and Letter of Understanding.

With an estimated value of more than $100 billion, Commodity Murabaha currently is the most widely used Islamic money market product in the GCC and other jurisdictions for liquidity management purpose.

The development of the MATP culminates a year of intense work spearheaded by the IIFM Secretariat and involving several Islamic financial institutions (IFIs) from member jurisdictions as well as Sharia scholars, legal experts and other market practitioners, said IIFM chairman and Central Bank of Bahrain executive director, banking supervision, Khalid Hamad.

“The MATP is a benchmark document and a global first for the Islamic finance industry,” he said.

Standardisation of certain broader market documentation, products and practices has become a critical need for the Islamic finance industry, which has been growing strongly in many regions of the world, said IIFM chief executive officer, Ijlal Alvi.

“The utilisation of a standardised agreement for such a widely used product will result in tremendous cost and resource savings for IFIs. Most importantly, it will enable transparency, robustness and consistency in Islamic financial transactions.”

“In developing the MATP, some of the issues we addressed included the legal and operational processes to ensure its practical applicability,” he added.

“The guidance from renowned Sharia scholars ensured that the document complies with Sharia standards and the rulings of standard-setting bodies.”

A final Sharia review, by the scholars on IIFM Sharia Panel, took place on August 14 at an event hosted by the Dubai International Financial Market (DIFC).

This was followed by an IIFM Sharia panel meeting held in Jeddah on September 7, where a pronouncement approving the MATP was signed by the scholars.

“IIFM is indebted to the Sharia scholars, said IIFM Sharia co-ordinator Dr Ahmad Rufai.

“This work will not have seen light without the support and guidance of the scholars on IIFM Sharia panel,” he added.

IIFM’s primary focus lies in the advancement and standardisation of Islamic financial instrument structures, contracts, product development and infrastructure; and the issuance of guidelines and recommendations for the enhancement of Islamic Capital and Money Market globally.

In addition, development of the global primary and secondary capital market, short-term financial market and the creation of a market for Islamic financial instruments are key areas for IIFM.

Source: http://www.gulf-daily-news.com

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Written by Suapi Shaffaii

October 9, 2008 at 5:10 pm

One Response

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  1. Thanks for posting the article, was certainly a great read!

    Susan Kishner

    October 9, 2008 at 5:36 pm


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