UPDATE 1: The multi-currency electronic platform plans to start trading Islamic debt in 2012
The Bahrain Financial Exchange will begin operations next week by introducing a trading platform that will enable banks and companies to buy and sell assets used to back Islamic Murabahah transactions.
The “multi-currency” Murabahah electronic platform will open February 7, initially with five banks, Chief Executive Officer Arshad Khan said in an interview in the capital, Manama today. The exchange, which was scheduled to open in October, plans to start trading Islamic debt next year, he said.
Bahrain, which has the largest number of Islamic banks among the six-member Gulf Cooperation Council, is seeking to attract investors in the $1 trillion Shariah-compliant finance industry with a bourse dedicated to securities that comply with Islam’s principles. Malaysia, the world’s largest market for Islamic bonds, in 2009 introduced an online trading platform for Murabahah transactions.
“Right now there is no automation, everything is manual so of course the efficiency is not there, the cost of transaction is high,” Khan said. “You can do a transaction in two minutes versus two days.”
A Murabahah transaction is a sale and deferred-payment agreement based on an asset in which the cost and profit margin are pre-agreed between a bank and its customer. Transactions in Islamic finance are based on the exchange of assets rather than interest to comply with Shariah principles.
The bourse is seeking to tap as much 30 percent of the global Murabahah market by year-end, Khan said. Daily trading of the contracts is between $8bn and $10bn.
The Bahrain Financial Exchange will in March allow investors to trade futures contracts in currencies and commodities, such as gold and crude oil, Khan said. It plans to start the non-Islamic derivatives exchange with as many as 15 members, he said.
Futures on an Indian stock index and a Middle East and North Africa index will be listed on the exchange, Khan said. The exchange plans to have as many as 30 members trading the Islamic contracts by the end of this year.