Thursday, October 09, 2008

IIFM standardized murabaha document finished; sukuk market an alternative to the conventional?

The International Islamic Financial Market (IIFM) announced that it had finished the creation of a standardized agreement, the Master Agreement for Treasury Placement (MATP). The standardized document is primarily used for Shari'ah-compliant deposit products using commodity murabaha. The commodity murabaha product is a somewhat controversial way to replicate a short term loan and is used to address Islamic banks' liquidity management challenge. The move towards standardized documents for common products like murabaha will provide a way to maximize the value of Shari'ah scholars' scarce time by allowing them more time to review innovative or controversial new products.

The secretary general of ASEAN says that companies finding difficulty tapping the conventional credit markets have been turning to sukuk, although issuance is down sharply this year. An article describing why Islamic finance does not allow short selling morphs into a reminder about performance of Islamic banks.

Malaysia's central bank governor says that the reliance on profit-and-loss sharing agreements has insulated Islamic finance from the credit crisis. Because most products are not profit-and-loss sharing in form, it seems to me that the insulation of Islamic finance is provided mostly by continuing strong economic growth in the areas with the most Islamic finance, the GCC and Malaysia.

Islamic funds continue to receive good publicity in the U.K. Islamic finance and banking continues to lag in Egypt while booming in Bangladesh and encouraged in Japan through changes in the regulatory environment. Indonesia continues ahead towards issuing a dollar-denominated sukuk.

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