The International Islamic Financial Market (IIFM) launched the IIFM interbank unrestricted master investment wakalah agreement at a seminar in Singapore last week.

The Bahrain-based international standard-setting body said the global standard document launched under the patronage of the Monetary Authority of Singapore (MAS) is supplemented with an operational guidance memorandum.

“This global standard documentation is developed to be used in the Islamic interbank market between financial institutions in order to manage their liquidity requirements,” said IIFM CEO Ijlal Ahmed Alvi ahead of the 4th Annual World Islamic Banking Conference: Asia Summit in Singapore.

It is also aimed at minimising the over reliance on the use of the commodity murabaha in the interbank market transactions, he said.

The key main features of the agreement is that the investor will appoint the wakil (representative) as its agent to invest its funds in a Shariah-compliant manner in exchange for a fee.

The wakalah pool can be managed on a segregated asset pool or co-mingled asset pool basis at the agent’s discretion. Early termination which can be caused by the occurrence of default by either party, the calculation treatment of these events are well defined in this documentation, obliges the agent to notify the investor if the anticipated profit cannot be achieved.

“This much awaited documentation standard is another milestone in the standardisation and harmonisation of Islamic finance industry across the globe,” said Khalid Hamad Abdul-Rahman Hamad, IIFM chairman and ED for banking supervision at Central Bank of Bahrain.

He said the move would spur the use of the so-termed unrestricted walakah in the Islamic interbank market and encourage all the jurisdictions to implement the IIFM standard as well as address any accounting or regulatory requirements in their respective jurisdictions.

The term wakalah in Arabic means agency. Therefore, under the structure, an agency relationship is agreed between two parties to conduct a certain business undertaking.

IIFM is focused on the Islamic capital and money market segment of the industry. Its primary focus lies in the standardisation of Islamic financial products, documentation and related processes at the global level.