Collateralized Murabaha Agreement

Several banks want the guaranteed Murabaha format to be approved by their own Sharia councils, so that they can have it at the same time as existing instruments in the event of a possible liquidity shortage, he added. Collateralized murabaha Deals are already underway, but the deal will help normalize them, while more Islamic banks are attracted to waiting for a guide, Alvi said. IIFM, IIFM`s Shari`a Advisory Panel and Clifford Chance worked with a global working group of market players to develop a largely acceptable agreement according to industry standards, to serve the market, to meet the need for a guaranteed mechanism to generate liquidity. The standard will serve as an alternative to pension transactions, which are common money market instruments, used by conventional banks, but which are largely absent in the world of Islamic finance. Nov 16 (Reuters) – Bahrain-based International Islamic Financial Market (IIFM) has launched a draft standard contract for Murabaha`s secure operations to promote the use of a liquidity management instrument that Islamic institutions urgently need. In 2011, the United Arab Emirates organized Murabaha`s first secure operation between the National Bank of Abu Dhabi and the Abu Dhabi Islamic Bank. Collateralized murabaha is a cost-plus-profit agreement that attempts to avoid such problems by buying the asset at market value and immediately selling the asset to the customer to get value on a deferred payment. “The search for an alternative to Sharia-compliant retirement operations has become absolutely necessary and indispensable to meet the liquidity requirements of the sector, and the guaranteed transaction is currently the best alternative,” said Ijlal Ahmed Alvi, chairman of the Reuters news agency`s board of directors. A kind of Murabaha (cost-plus sale) which is provided by a Sukuk issue as collateral.

It offers an alternative for murabaha of unsecured raw materials in interbank credit markets. In other words, murabaha guaranteed is an Islamic monetary instrument that provides compatible financing shari`a, supported by assets, the financier having the right to sell the assets in case the client is unable to repay his debts. This structure combines Murabaha`s popular financing method with Sukuk, which constitute the mortgaged asset to secure the transaction. As a result, the Murabaha guarantee is a low-credit financial instrument that allows secured interbank transactions on the Islamic money market. It aims to promote the diversity of the existing liquidity management instrument and to improve the level of liquidity in the Islamic financial market. Traditional repositories allow institutions to lend assets over short periods of time to generate cash; This is not allowed in Islamic finance, since it is an interest rate. Guarantees are often borrowed by custodians, a practice known as remypotheque and contrary to Islamic principles. The new project comes with detailed guidelines, the first to publish the IIFM to address issues such as margin maintenance and detention, Alvi said. The Central Bank of Kazakhstan plans to join the IIFM, whose membership is expected to increase in addition to the number of standards issued, Alvi said. (Andrew Torchia`s treatment) The MCM agreement provides a guaranteed liquidity access mechanism (based on Arrahn`s shari`a principle) that uses Sukuk and other Shari`a-compliant securities as collateral, an important new instrument for Islamic financial institutions, which are trying to address the overall focus on liquidity and guarantees. In addition to the mcm agreement, the IIFM issued a memorandum on operational guidelines to facilitate the adoption of the agreement by Islamic financial institutions.