The International Islamic Financial
Market, a Bahrain-based regulator, issued global guidelines
today to unify and govern Shariah-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 Shariah-compliant capital and money markets, according
to its website. The body’s primary objective is the
standardization of Islamic financial products and documentation.
The Islamic Financial Services Board, another global
standards-setting body in Kuala Lumpur, estimates the Shariah-compliant financial-services industry grew 20 percent in 2012 to
$1.6 trillion in assets, according to a 2013 stability report.
Banking assets amounted to $1.27 trillion, with $229 billion of
sukuk outstanding, the article said.
Global sales of sukuk, which pay returns on assets to
comply with the interest ban, climbed 4 percent to $18.2 billion
in 2013 from a year earlier, according to data compiled by
Bloomberg. The bonds returned 0.5 percent this year, the
HSBC/Nasdaq Dubai US Dollar Sukuk Index shows, while debt in
developing markets lost 3.4 percent, according to JPMorgan Chase
Co.’s EMBI Global Diversified Index.
To contact the reporter responsible for this story:
Elffie Chew in Kuala Lumpur at
echew16@bloomberg.net.
To contact the editor responsible for this story:
James Regan at
jregan19@bloomberg.net