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Wednesday, 12 June 2013

IIFM issues global standards for syariah Wakalah agreements

The International Islamic Financial Market (IIFM), a Bahrain-based regulator, issued global guidelines yesterday to unify and govern syariah-compliant contracts used between an agent and a service provider.

The Wakalah agreements will seek to broaden the range of liquidity-management products for lenders, Ijlal Ahmed Alvi, the institution’s chief executive officer, says in a statement issued in Singapore, where the World Islamic Banking Conference is taking place.

They will cut reliance on commodity-backed contracts amid limited supply of products that conform to Koranic principles.

Islamic law prohibits the payment of interest and bans investment in industries such as gambling and alcohol deemed as unethical.

Under a Wakalah agreement, a lender acts as an agent between say an importer and exporter by issuing a letter of credit and is paid fees and commissions in the place of interest.

IIFM was established in 2002 by the monetary authorities of Bahrain, Malaysia, Brunei, Indonesia and Sudan, as well as the Islamic Development Bank based in Jeddah, Saudi Arabia, to focus on global syariah-compliant capital and money markets, according to its website. The body’s primary objective is the standardisation of Islamic financial products and documentation.

The Islamic Financial Services Board, another global standards-setting body in Kuala Lumpur, estimates the syariah-compliant financial-services industry grew 20 per cent in 2012 to US$1.6 trillion in assets, according to a 2013 stability report. Banking assets amounted to US$1.27 trillion, with US$229 billion of sukuk outstanding, the article said.

Global sales of sukuk, which pay returns on assets to comply with the interest ban, climbed four percent to US$18.2 billion in 2013 from a year earlier, according to data compiled by Bloomberg. The bonds returned 0.5 per cent this year, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows, while debt in developing markets lost 3.4 per cent, according to JPMorgan Chase & Co’s EMBI Global Diversified Index.

(Borneo Post Online / 04 Jun 2013)

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