Category Archives: Murabaha

SWIFT goes Shariah compliant for interbank Murabaha transactions

SWIFT goes Shariah compliant for interbank Murabaha transactions


SWIFT has announced that ISO 15022 message standards for the processing of treasury murabaha transactions have been certified compliant with the international Islamic finance standards issued by AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions). This certification paves the way towards the automated processing of murabaha treasury transactions, said to represent 60 percent of all Islamic financing.

Murabaha includes money transfer and commodity trade. While SWIFT has carried the money transfer for many years, commodity trade has been completed manually, usually by fax without any globally agreed standard. SWIFT’s solution uses the ISO 15022 message standards within the guidelines of a murabaha standards rulebook (the guidelines can be downloaded from

“AAOIFI is responsible for global Islamic finance industry standards and we establish best practices for the industry”, says Mohamad Nedal Alchaar, AAOIFI secretary general. “Our collaboration with SWIFT aims to build a well-structured and well-regulated international Islamic finance infrastructure.”

Alain Raes, SWIFT’s chief executive for Europe, the Middle East and Africa, who accepted the compliance certificate on SWIFT’s behalf at the recent Sibos conference in Amsterdam, adds: “Murabaha automation is the first step on a long journey of collaboration with the Islamic financial community.”

The use of ISO 15022 messages over SWIFT does not change the current process between banks, their customers and brokers. However, the data defined in the schedules under the terms of the master murabaha agreement is now exchanged using standardized messages via SWIFT as opposed to bilaterally agreed confirmations exchanged manually. Participants involved in murabahawill benefit from a globally agreed electronic standard, automation which will lead to a reduction in costs and risk, and an audit trail for Sharia compliance.

More than 240 Islamic banks representing 84 percent of global Sharia compliant assets are members of SWIFT.  Islamic finance is growing at more than 20 percent per annum, and the demand for Shariacompliant messaging standards is increasing as a result. SWIFT is working with the Islamic financial community to address this demand, both at the level of individual banks, and with organizations such as AAOIFI and AIBIM (the Association of Islamic Banking Institutions Malaysia).


Al Yusr Islamic banking service launches new Car Murabaha

Al Yusr Islamic banking service launches new Car Murabaha


In line with its strategy of developing unique and innovative financing solutions to meet different customer needs, Al Yusr Islamic banking service of IBQ announced today the launch of its latest Sharia-compliant financing product. The new Car Murabaha product aims at providing customers enhanced flexibility and favourable repayment tenure while upholding the highest standards of Sharia compliance.

"The Al Yusr Car Murabaha has been developed to enable our customers to meet their financing requirements while benefitting from enhanced flexibility, competitive rates and a unique personalised service while adhering to the prudent risk management principles prescribed under Sharia," said Hassan Al Mulla, Head of Islamic Banking.

"At Al Yusr, our product development strategy is driven by innovation and a commitment to making the banking experience simpler and more rewarding for our customers, while having a positive impact on the overall economy. We believe Car Murabaha is a valuable addition to our product suite that will prove extremely beneficial to customers looking for Sharia-compliant and flexible financing options."

Al Yusr Car Murabaha enables customers to benefit from rewarding financing terms and flexible repayment tenures, without any requirements for salary transfer or guarantor.

The new product also allows customers to benefit from a fast approval process and an exceptional level of personalised service from Al Yusr’s highly competent and sophisticated customer service professionals.

Al Mulla added, "The growing range of Sharia-compliant financing products from Al Yusr Islamic banking service will not only provide customers with favourable financing options, but also enable them to achieve their short and long-term financing goals, while positively impacting the development of a sophisticated financing infrastructure in the state of Qatar."

IBQ launched its first Al Yusr Islamic banking service retail branch in May this year. The branch, which is located on the C-Ring road in Doha, offers a comprehensive range of banking and finance products to suit all needs.

IIFM developing standards for Commodity Murabaha

Islamic finance body eyes common deals

An Islamic financial standards body yesterday said it had created standard documentation for one of the booming industry’s most common transactions, which it hopes will make such deals quicker and cheaper. Lack of standardised documentation and practices has been repeatedly highlighted by the Islamic finance industry as one of the key constraints on the rapidly growing sector.

Islamic law is open to interpretation, which leads to differences in banking practices depending on the financial institution’s advisors.

The Bahrain-based International Islamic Financial Market (IIFM) hopes its Master Agreement for Treasury Placement, which is in the final stages of gaining approval by Islamic scholars, will become a standard document.

“Each bank takes its own different decisions. What we are trying to do is put together a document which is a benchmark document that the industry can use,” IIFM chief executive Ijlal Alvi told a conference on the future of Islamic finance.

Assets invested according to Islamic guidelines have been growing at roughly 20% a year worldwide, reaching $900bn in 2007, and are set to $2tn by 2010, accountants Ernst & Young estimated.

By far the most common Islamic financial transaction is commodity murabaha, which involves a bank buying a commodity for a client, and the client paying the bank back the cost of the commodity plus a bank charge or “profit rate” at a later date.

The contract helps banks manage liquidity, and can be used by the client to secure cash by selling the commodity on again, effectively buying money from the bank for the cost of the profit rate.

Islam bans interest, and stipulates that deals must be based on tangible assets – money cannot be made from money alone.

Alvi and other bankers at the conference said the response to the standard document had been positive, and expected widespread acceptance. However, the document is not mandatory as the IIFM is not a regulator with punitive powers.

Commodity murabaha deals have come under criticism in recent years on fears that it is just a paper trail to circumvent Islamic law, with no real prospect of a physical commodity changing hands.

Misused murabaha hurts industry

Misused murabaha hurts industry

A commonly used Islamic finance product could cause the downfall of the industry because it is being used inappropriately, a senior banking figure has claimed.

Islamic banks often use commodity murabaha agreements to invest their surplus cash in a Shariah compliant way. This involves buying into a basket of commodities, such as metals, held by another bank for a pre-determined amount of time and a pre-determined return.

However, in practice, many of the transactions never see any commodities change hands and sometimes there are no commodities involved, merely cash flows between banks and brokers.

Murabaha contracts in London conference spotlight

Murabaha contracts in London conference spotlight

The Bahrain-based International Islamic Financial Market (IIFM) is spearheading the development of a master agreement for Islamic hedging, it was announced yesterday.

It also includes a master agreement for Islamic treasury Murabaha contracts and standardised documentation for sukuk and a Sharia-compliant repurchase agreement (Repo).

Progress on the three projects will be the focus of a briefing conference being organised by the IIFM in London on Monday.

More than 70 participants representing the UK Financial Services Authority, HM Treasury, London Stock Exchange, London Metal Exchange, legal firms and UK-based Islamic and conventional financial institutions will be taking part in the event.

The industry briefing session, which is sponsored by the European Islamic Investment Bank and Calyon Corporate and Investment Bank, follows the 18th meeting of the IIFM board of directors.

The briefing session will provide guidance to a selective group of industry experts of Islamic finance on industry trends and future directions as well as project specific presentations.

The projects were agreed with the industry during briefing sessions held in Bahrain and London last year.

“IIFM has been working hard to advance a number of key projects, which are critical to the next phase of development of a truly globalised Islamic finance industry and Islamic capital markets,” said IIFM chief executive officer Ijlal Alvi.

The centre piece of IIFM action plan is the master agreement for Islamic hedging, a key tool in risk management, which the IIFM is working on in conjunction with the International Swaps and Derivatives Association.

The two organisations are jointly developing the agreement for documenting privately negotiated Sharia-compliant hedging transactions.

The IIFM is working with the International Capital Market Association on development requirements for Islamic primary and secondary market instruments, including a Sharia-compliant Repo.

The work also includes developing recommendations, standard documentation, standard language and guidance for sukuk issuance in primary market; rules and recommendations for secondary market transactions involving sukuk and other Islamic financial instruments as well as the provision of on-line transaction matching, reporting and confirmation services for sukuk and other Islamic financial instruments.

IIFM has commissioned a prominent international legal firm to develop the relevant legal documents.