A Bahrain-based Islamic finance standard-setting organisation will create a set of rules and guidelines that will make it easier for Sharia-compliant banks to do business with each other.
The International Islamic Financial Market (IIFM) yesterday announced plans to start standardising syndicated financing and Sharia-compliant repo documentation.
This will help to reduce costs and make it easier for Islamic banks to expand into new markets.
The board of directors of IIFM in its 49th meeting hosted by the Saudi National Bank at its office in Jeddah approved to initiate the standardisation of syndicated Ijarah and syndicated Murabaha financing documentation based on feedback received from an industry assessment exercise.
The standards development will commence early 2024 in consultation with the industry and with financial assistance the Islamic Development Bank Institute.
To enhance liquidity management products for Islamic banks, the board also approved the plan to develop a global standardised Sharia-compliant repo documentation that will provide a tool to manage liquidity which in turn will help the market to expand in an orderly manner.
IIFM has completed the industry assessment exercise in this area and will soon commence its standards development process in consultation with the industry during early 2024.
The standard-setting body is also working on a new hedge product confirmation for Islamic banks.
This confirmation will make it easier for Islamic banks to hedge against risk.
The statement said the joint IIFM and the International Swaps and Derivatives Association (ISDA) initiative on carrying out operational improvements to existing hedging product confirmations; namely the Islamic Profit Rate Swap (IPRS) and the Islamic Cross Currency Swap (ICRCS) is to simplify the transaction process by segregating the annexes from the master terms and conditions.
The industry consultation exercise has been completed and the new versions of the IPRS and ICRCS will be available soon.
IIFM chairman Khalid Hamad said: “Standardisation is a key element of the financial services industry and IIFM as well as other Islamic standard-setting bodies are extensively working on creation of transparent, robust and harmonised standards.”
He also stated: “the number of financial institutions using IIFM documents is progressing in a number of jurisdictions and the banks benefit tremendously from use of these high level standards by saving on legal documentation related costs and time efficiency in terms of negotiation and execution of transactions. This also promotes uniform practices globally resulting in minimisation of operational risk, creation of legal certainty and facilitation of Sharia harmonisation for the sustainable development of the industry.”
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