Standardised murabaha imminent

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Shariah steel: The guidelines would help to standardise commodity murabaha transactions.

IIFM finalising Islamic treasury placement guidelines.

The International Islamic Financial Market (IIFM), a group founded by central banks to develop the Islamic capital and money market, said last month it is in the final stages of developing a set of guidelines that could standardise the controversial commodity murabaha transaction.

The Master Agreement for Treasury Placement (MATP) is currently undergoing a final review by financial institutions, to be followed by a review by prominent Shariah scholars.

The MATP is expected to simplify the Islamic banking industry's commodity murabaha transactions, which make up most Islamic market transactions, Ijlal Alvi, CEO of the IIFM, said.

Islamic banks often use commodity murabaha agreements to invest their surplus cash in a Shariah compliant way. The transaction involves buying into a basket of commodities held by another bank for a pre-determined amount of time and a pre-determined return, but it has caused debate in the industry because in many of the transactions, no commodities actually change ownership.

Khalid Hamad, IIFM chairman and executive director, banking supervision, at the Central Bank of Bahrain (CBB), said: "The IIFM is delighted to have spearheaded such a project to develop a contract which will cover over 90% of commodity murabaha transactions in numerous jurisdictions across the world.

In addition, the utilisation of a standardised agreement will enable more transparency, robustness and consistency in Islamic financial transactions. The standardisation of such a contract will have significant positive ramifications for the Islamic banking industry worldwide."

The IIFM's founding and permanent members, Bahrain, Brunei, Indonesia, Malaysia, Pakistan and Sudan, as well as the Islamic Development Bank, have provided regulatory expertise in developing the document. A global law firm and accounting and auditing firm have also been involved in developing the master agreement.

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