Islamic Finance News Portal – Bringing you the latest updates in global Shariah finance

Watch out for news alert!

Posts Tagged ‘Commodity Murabahah

Debate over commodity murabahah

leave a comment »

Points of Essence:

  • It is not always rosy for Islamic financial products which  often become subjects of differing views from Islamic scholars on their Shariah compliance. The newest product adopting the concept of commodity murabahah is of no exception. Initially introduced as a money market instrument, it has expanded to other spectrum of financial products. The trade elements tied to the product structure with pre-determined profit rate completing the backbone, commodity murabahah is generally accepted, albeit with caution.
  • Even with one edict banning it claiming its similarity with with interest bearing elements and the other to condition it upon the numbers of contracting parties, this looks like the best bet we have so far as conceptual wise, it is globally accepted. Thus, until we find a better alternative, this product is here to stay. The Star has the report.

Some Islamic scholars think commodity murabahah should be avoided as much as possible, saying it closely resembles an interest-bearing transaction. Is there a better alternative financing structure?

THE concept of commodity murabahah (or tawarruq in some jurisdictions) has only recently been widely applied in Islamic finance, along with other syariah contracts such as mudarabah, musharaka and bai murabahah.

The application of this trade-related structure with a pre-determined profit rate (or pre-agreed “margin” or “mark-up”) is possible in syariah-compliant financing and deposit products as well as in liquidity management/treasury instruments and other investment products/securities.

However, resistance still exists on the ground from some critics who say that commodity murabahah-based financial products bear a striking resemblance to interest-based products.

Read the rest of this entry »

Written by Suapi Shaffaii

January 21, 2009 at 12:27 pm

CIMB Islamic launches 1st Syariah-compliant product in Hong Kong

leave a comment »

Points of Essence:

  • CIMB Islamic recently launched its Commodity Murabahah Deposit via its Islamic window in Hong Kong. Using commodity products as underlying assets, the Islamic money market instruments will tap into the potential market of Hong Kong as a vibrant Islamic financial hub as well as providing a window for the mainland market.

HONG KONG: CIMB Islamic, the Islamic banking arm of Malaysia’s second largest bank CIMB Group, on Tuesday launched its first Syariah-compliant product in Hong Kong and signed the first transaction with Hong Leong Bank for its Commodity Murabahah Deposit.

The product will utilise commodities like crude palm oil, metal or any tradeable commodities as its underlying asset.

CIMB Islamic chief executive officer Badlisyah Abdul Ghani said the Hong Kong Monetary Authority (HKMA) gave its clearance last week for the launch of the interbank money product.

“It is important for CIMB Islamic to be here because Hong Kong has great potential as an Islamic financial market,” he said.

HKMA deputy chief Eddie Yue witnessed the the memorandum of understanding signed between the Hong Kong branches of CIMB and Hong Leong, the first institutions based here to offer Islamic banking.

Hong Kong is charging ahead into developing an Islamic banking centre to tap the huge global Islamic assets that are estimated to reach US$1 trillion by 2010.

Badlisyah said the launch marked the opening of CIMB’s Islamic banking window not only in Hong Kong but also to mainland China where the group had acquired a 20 percent state in the Bank of Ying Kou in north-eastern Liaoning province earlier this year.

CIMB Islamic plans to expand from wholesale Islamic banking business in Hong Kong to other activities, namely asset management, and if viable, consumer banking.

“But in the long term, the biggest opportunity and probability is to do wholesale business and asset management. We are looking at a timeline of three to five years. Consumer banking is still quite remote,” he told Bernama.

The Commodity Murabahah Deposit based on the Islamic principle of Murabahah gives fixed returns to investors and is widely used in the global Islamic market to facilitate deposit-taking. It works through the purchase and subsequent sale of a commodity at cost plus a specified profit.

CIMB obtained Bank Negara Malaysia’s approval last December to undertake Islamic banking operations in all its overseas branches.

Hong Kong is an important platform into mainland China to which all eyes are turned to remain a growth engine for the stuttering world economy in the wake of the global financial crisis.

“When the market is opened to us, through our Hong Kong branch as well as Bank of Ying Kou, we will see how to develop wholesale banking, asset management and consumer banking on the mainland,” Badlisyah said.

The viability of starting consumer banking would have to be closely evaluated because the Muslim population was distributed widely across China, raising the question of how to service the market, he said.

“What we are going to concentrate on is the easy part, bringing what we have from Malaysia into this market. I think as for the mainland, the proper timeline is one to two years rather than immediate,” he added.

CIMB Islamic is a global player in the industry and is the world’s largest sukuk or Islamic bond issue with a 20 percent share worldwide.-Bernama

Written by Suapi Shaffaii

November 29, 2008 at 12:09 am

Key agreement boost for global Islamic finance

with one comment

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.

Click here for more!

Written by Suapi Shaffaii

October 9, 2008 at 5:10 pm