29/08/2009
Aug 29, 2009
Malaysia's central bank announced on Friday rules for a standard application of the murabaha financing structure, seeking a common reading of Islamic law to help the industry grow.
Bank Negara's murabaha guidelines follow other recent efforts at harmonisation by Islamic banks and Bahrain-based industry body AAOIFI, which would make it cheaper to conduct sharia financial transactions and encourage cross-border deals.
The murabaha guidelines "would contribute to further harmonisation in the interpretation and application of sharia views and opinions, especially among sharia committee members," the central bank said in a statement.
Islamic finance is derived from the sharia, which is interpreted differently by the various schools of thought. While the industry agrees that gambling, alcohol and interest-based lending are off-limits, it is divided on instruments such as hedge funds and derivatives.
This has made it difficult to sell some products across borders, with one jurisdiction disagreeing with another on whether a product is Islamic.
But some bankers say the lack of standardisation promotes innovation, with Islam allowing for differences in views.
The central bank's rules apply to Islamic financial institutions in Malaysia, which has the world's largest sharia bond market.
It is also working on rules to determine the key features of other popular Islamic structures such as istisna, mudaraba, musharaka, wadiah and ijara.
Under a murabaha deal, an Islamic bank buys an asset from a third party and sells it to its customer at cost plus profit. This allows the bank to extend financing without charging interest, which the religion forbids.
According to Bank Negara's guidelines, the murabaha sale price is based on the disclosed acquisition cost with an added mark-up amount or percentage which has to be determined before the conclusion of the contract.
Assets to be purchased for murabaha sale shall be assets which are in existence and can be considered for an enforceable sale. Assets under construction are not eligible.
The full guidelines are available at http://mifc.com/index.php?tpt=&tpl=th008_viewpdf.tsl&filelink=/ index.php?ch=38>pg=102>ac=92>bb=501 Bank Negara's murabaha guidelines were approved by its sharia advisers who include Mohd Daud Bakar, Sheikh Ghazali Abdul Rahman, Engku Rabiah Adawiah Engku Ali, Mohamad Akram Laldin and Muhammad Syafii Antonio.
There is also debate about the use of commodity murabaha, a $100 billion market which bankers say can mask sham deals, with no true sale and no real transfer of risk to the buyer.
Malaysian Islamic banks recently launched a standard agreement for commodity murabaha deposit accounts between banks and corporates.
Last year, the International Islamic Financial Market and International Swaps and Derivatives Association said they would standardise the main terms for over-the-counter Islamic derivatives contracts, reports Reuters.
