International Islamic Financial Market releases paper on Shariah repo alternative|News

The International Islamic Financial Market (IIFM) has released a reference paper on I’aadat Al Shira’a, a Shariah compliant alternative to repo transactions.

IIFM’s paper aims to outline a structure by which I’aadat Al Shira’a could play a role in the market, by increasing liquidity and creating a more active Sukuk [an Islamic financial instrument] secondary market.

The lack of repurchase agreements within the Islamic finance market has been a cause of concern, according to Ijlal Alvi, CEO of IIFM.

“The lack of liquidity management tools, particularly a repo-like product, is a challenge that has been faced by the Islamic finance industry for some time,” he explained.

“IIFM initiated the process with the assistance of the working team consisting of leading practitioners from the industry to find a solution or identify the key factors which may eventually lead to the development of a product which Islamic financial institutions can use for their short-term liquidity management requirements.”

Ismail Dadabhoy, executive director-head of Islamic finance at UBS Investment Bank, Dubai and chairman of the IIFM ‘IS’ working team, added: “Finding a solution for repo alternative product that satisfies Shariah while also being acceptable to the general market has been a real challenge.

“As an ex-repo trader, I know how important this product is to the short term and fixed income traders. I am convinced wider use by the market of I'aadat Al Shira'a will add liquidity in the system in terms of cash funding and liquidity float of Sukuk. It will ‘oil’ the wheels for efficiency and be a boost for Sukuk.”

Craig McGlashan [More]

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