Collateralized Murabaha Agreement

Nov 16 (Reuters) – Bahrain-based International Islamic Financial Market (IIFM) has introduced a standard contract template for Murabaha`s secured transactions to promote the use of a much-needed liquidity management tool for Islamic financial institutions. A kind of Murabaha (cost plus sale) that is secured by a Sukuk issue as a guarantee. It offers an alternative for murabaha of unsecured commodities in interbank credit markets. In other words, murabaha guaranteed is an Islamic monetary instrument that offers Shariah-compatible financing, secured by assets, with the financier having the right to sell the assets if the client does not pay his contributions. This structure combines the popular financing mode of Murabaha and Sukuk, which constitute the mortgaged asset to guarantee the transaction. As a result, murabaha guarantee is a low-risk financial instrument that enables secured interbank transactions in the Islamic money market. It aims to increase the diversity of the existing liquidity management tool and increase the level of liquidity in the Islamic financial market. Several banks want to have the Murabaha format secured approved by their own Sharia boards so that they can use it in the event of a potential liquidity shortage alongside existing instruments, he added. In 2011, the United Arab Emirates concluded Murabaha`s first transaction between the National Bank of Abu Dhabi and Abu Dhabi Islamic Bank.

Guaranteed Murabaha agreements are already in place, but the agreement will help standardize them while attracting more Islamic banks waiting for a guide, Alvi said. The standard will serve as an alternative to repo transactions, which are common money market instruments used by traditional banks but are largely absent from Islamic finance. “The search for a Shariah-compliant alternative to pension operations has become absolutely indispensable and indispensable to meet the liquidity requirements of the sector and the secured transaction is currently the best alternative,” CEO Ijlal Ahmed Alvi told Reuters. Iifm, IIFM`s Shari`a Advisory Panel and Clifford Chance have worked with a global working group of market participants to develop a broadly acceptable industry standard agreement to meet the needs of a cash guarantee facility. Collateralised Murabaha is a cost plus profit agreement that attempts to avoid such problems by buying the asset at its market value and immediately selling the asset to the client for a markup on a deferred payment basis. . . .

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