MANAMA: The International Islamic Financial Market (IIFM), a Bahrain-based standard setter, has launched Sharia-compliant solutions for the new benchmark risk-free rate (RFR) for Murabaha and Ijara transactions.
Globally, work on phasing out of London Inter-Bank Offered Rate (Libor) and transition to RFRs or alternative benchmark rates is now approaching discontinuation date of December 31, 2021 for currencies such as USD, EUR, GBP, CHF, JPY and certain other hard currencies used in the domestic as well as cross border trades.
Since last year the regulators of the European Union, the UK, North America and Japan in particular are pushing the global financial services industry to complete the implementation of RFRs as the benchmark rate instead of Libor as most of the interbank offered rates fixing will cease to exist after end-December 2021 while in few cases the final deadline will be June 2023.
The global benchmark rate reform is a significant regulatory driven development that also has consequences for Islamic financial transactions.
In order to form a consensus around the development of viable and standardised Sharia-compliant solutions and amendments particularly in documentation, IIFM worked with three specific work streams namely Financing, Hedging and Sukuk to deal with this important development and to reach practical and workable solutions relating to IIFM mandated areas of focus.
Khalid Hamad, chairman of IIFM said: “IIFM has always strived to take active role in the industry’s development and its unification and the publication of these Sharia-compliant solutions required for smooth transition by the Islamic finance industry. Developing a Sharia solution on these new alternative benchmark rates is testament to IIFM’s valuable contribution to the industry and no doubt these standard guidelines will greatly benefit all the market participants globally.”
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