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Thursday, 12 June 2008

CBB set to launch key Islamic financial instrument

by Mike Galagher

Islamic Sukuk Liquidity Instrument will launch at the end of June. Tripartite structure will allow financial institutions to engage in transactions aimed at accessing short term liquidity

The Central Bank of Bahrain (CBB) is set to launch a key Islamic financial instrument aimed at providing a much-needed liquidity management tool to Islamic financial institutions.
The Islamic Sukuk Liquidity Instrument (ISLI) has been jointly developed by the CBB and the Bahrain-based Liquidity Management Centre (LMC), an organisation which provides asset sourcing, structuring and market making capabilities.
The ISLI has been designed to enable financial institutions, both conventional and Islamic, to access short term liquidity against government of Bahrain Ijarah Sukuk, issued by the CBB.
The CBB said the availability of instruments such as ISLI will help create a deeper and more liquid Sukuk market, which requires a variety of short and long term instruments to enhance Islamic banks’ ability to efficiently manage their liquidity. It will also stimulate and promote a more active Islamic financial market.
Ahmed Abbas, the chief executive of LMC, speaking to CPI Financial said, “Worst case scenario, I have been told by the CBB it will be ready to go at the end of June. The CBB is launching it with a limited CBB Sukuk, but the structure allows the party to have it done with any Sukuk.”
The CBB said the tripartite structure developed by the CBB and LMC will enable financial institutions holding BD-denominated CBB Ijarah Sukuk, short, medium or long term, to engage in transactions aimed at accessing short term liquidity.
“Although on many dimensions, it looks like a Repo, it is not a Repo because the buyer has actual ownership of the asset and he has the risk of the asset. However, he the sale onwards or sale backwards price is fixed by our promise. The lender has to be really comfortable with the credit, but not only with the credit of the borrower, but with the credit of the asset,” Abbas added.
The contract has been endorsed by the Shari’ah boards of the CBB and LMC. Members of the CBB Shari’ah board are Sheikh Nizam Yaquby, Sheikh Dr Abdul Sattar Abu Ghuddah, Sheikh Mohsin Al Asfoor, Sheikh Abdulla Al Manea and Justice Taqi Usmani, while LMC’s Shari’ah board comprises Sheikh Dr Hussain Hamid, Sheikh Dr Ajeel Al Nashmi, Sheikh Adnan Al Qattan and Dr Abu Ghuddah.
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