International Islamic Financial Market launches first-ever standardised Master Murabaha and agency agreements

The IIFM Master Agreement for Treasury Placement (MATP) can be used by financial institutions across the globe for their over-the-counter (OTC) Commodity Murabaha transactions.

The MATP comprises of standalone Master Murabaha Agreement, Master Agency Agreement and Letter of Understanding.

With an estimated value of more than $100bn, Commodity Murabaha currently is the most widely used Islamic money market product in the GCC and other jurisdictions for liquidity management purpose.

The development of the MATP culminates 2 years of intense work spearheaded by the IIFM Secretariat and involving several Islamic financial institutions (IFI's) from member jurisdictions as well as Shari'ah scholars, legal experts and other market practitioners, said Mr. Khalid Hamad, Chairman of the IIFM and Executive Director, Banking Supervision, at the Central Bank of Bahrain (CBB).

"The MATP is a benchmark document and a global first for the Islamic finance industry,"

he said during a press conference held at the CBB premises to unveil the MATP.

Standardisation of certain broader market documentation, products and practices has become a critical need for the Islamic finance industry, which has been growing strongly in many regions of the world, said Mr. Ijlal Alvi, Chief Executive Officer of the Bahrain-based IIFM, an international institution focused on the development of the global Islamic capital and money markets

"The utilization of a standardised agreement for such a widely used product will result in tremendous cost and resource savings for IFI's. Most importantly, it will enable transparency, robustness and consistency in Islamic financial transactions" said Mr. Alvi.

"In developing the MATP, some of the issues we addressed included the legal and operational processes to ensure its practical applicability. The guidance from renowned Shari'ah scholars ensured that the document complies with Shari'ah standards and the rulings of standard-setting bodies," said Mr. Alvi.

IIFM worked with a number of regional and international market participants to develop the MATP. Clifford Chance acted as external legal counsel to the IIFM for the project and Qudeer Latif, a Partner and Head of Islamic Finance at Clifford Chance stated, "We are delighted to have worked with the IIFM and the members of their Shari'ah Panel in connection with this important and exciting initiative. The adoption of the MATP will enhance cost, time and operational efficiencies of Shari'ah compliant deposit arrangements".

A final Shari'ah review, by the scholars on IIFM Shari'ah Panel, took place on 14th August 2008 at an event hosted by the Dubai International Financial Market (DIFC). This was followed by an IIFM Shari'ah Panel meeting held in Jeddah on 7 September 2008, where a pronouncement approving the MATP was signed by the scholars.

"IIFM is grateful to the DIFC for its support in hosting the Shari'ah Panel meeting," said Mr. Alvi.

Dr. Ahmad Rufai, Shari'ah Coordinator at IIFM said "IIFM is indebted to the Shari'ah scholars; this work will not have seen light without the support and guidance of the scholars on IIFM Shari'ah Panel."

Mr. Alvi added, "We are also thankful to IIFM Board members, members, Documentary Convergence Working Group members and all other market participants who have been actively involved in the MATP development process."

He also acknowledged the strong support extended to IIFM by its hosts CBB from inception of the initiative and through to its completion. Mr. Alvi is confident that going forward such support by CBB and other permanent member jurisdictions namely DIFC, Labuan Offshore Financial Services Authority (LOFSA) - Malaysia, Bank Indonesia, Bank of Sudan, State Bank of Pakistan, Ministry of Finance - Brunei and the Islamic Development Bank - Saudi Arabia, will continue to ensure wider adaptation and acceptance.

IIFM projects including MATP are undertaken in consultation with market participants, mainly financial institutions, to ensure their acceptance and adoption by the industry, Mr. Alvi pointed out.