Dubai, Oct 9 (IANS) The Bahrain-based International Islamic Financial Market (IIFM) has launched the world's first master agreement in Islamic finance.
IIFM's Master Agreement for Treasury Placement (MATP) can be used by Islamic financial institutions (IFIs) across the world for their over-the-counter (OTC) commodity Murabaha transactions.
'The MATP is a benchmark document and a global first for the Islamic finance industry,' Khalid Hamad, chairman of the IIFM and executive director for banking supervision at the Central Bank of Bahrain (CBB), said in a statement.
The MATP, which has been arrived at after yearlong research by the IIFM secretariat, IFIs and Islamic finance or shariah scholars, comprises a standalone Master Murabaha Agreement, a Master Agency Agreement and a Letter of Understanding.
Murabaha is a particular kind of sale, compliant with shariah, where the seller expressly mentions at what price he bought the commodity before selling it to another person by adding a profit or mark-up which is known to the buyer.
It is one of the most popular modes used by IFIs to promote usury-free transactions and is generally used in asset financing, property, micro finance as well as in import and export of commodities.
With an estimated value of more than $100 billion, commodity Murabaha currently is the most widely used Islamic money market product in the Gulf and other jurisdictions for liquidity management purposes.
According to IIFM chief executive Ijlal Alvi, 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.
'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,' Alvi said.
According to him, some of the issues addressed by the IIFM while developing the MATP included the legal and operational processes to ensure its practical applicability.
'The guidance from renowned shariah scholars ensured that the document complied with shariah standards and the rulings of standard-setting bodies,' Alvi added.
IIFM was founded with the collective efforts of the central banks and monetary agencies of Bahrain, Brunei, Indonesia, Malaysia, Sudan and the Islamic Development Bank in Saudi Arabia, as an infrastructure institution with the mandate to take part in the establishment, development, self-regulation and promotion of Islamic capital and money market.
Its primary focus lies in the advancement and standardisation of Islamic financial instrument structures, contracts, product development and infrastructure as also the issuance of guidelines and recommendations for the enhancement of Islamic capital and money market globally.
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