Central Bank of Bahrain to launch Islamic repo

Bahrain Tribune) As part of its effort to unveil a host of initiatives to stimulate the Islamic finance market, the Central Bank of Bahrain would soon launch an Islamic version of the Repurchase Agreement (Repo).
"We are engaged in the development of the Islamic repo, which we plan to bring to market very soon," the Governor of Central Bank of Bahrain, Rasheed Al Maraj said yesterday after inaugurating the fourth annual World Islamic Fund and Capital Markets conference.

Repos, or repurchase agreements, allow investors to borrow money by selling securities and simultaneously promising to buy them back at a higher price and at a specified time.

However, a section of Shariah scholras view repos as inherently un-Islamic and say the repo rate - the price difference between the transactions - contravenes the ban on borrowing and lending on interest.

The move by Bahrain's central bank could well bring out the Arab region's first Islamic repo transaction. A repo will allow central banks to create and manage liquidity in sukuk, which has been elusive for years.

The BSE's sukuk market has also grown significantly, with the total size of sukuk listings currently in excess if $3 billion, double that from five years ago. On its part, the CBB, having pioneered the development of sukuk, remains active in the sovereign sukuk market, with a total of $1.69 billion medium to long term sukuk issued, complemented by a regular programme of short term issuance.

Recently, the CBB issued its second international sukuk, worth $350 million, which is listed on the London Stock Exchange, along with a previous issue of $250 million.

With over $16 billion in assets under management, through more than 2,500 funds, the Islamic funds industry has been growing at an annual average of about 20 per cent in recent years.

"The growth in the Islamic funds and capital markets is reflective of the surge sweeping the region's financial services industry. These are interesting times, particularly for those of us in the business of banking and finance. The economic boom in the GCC region is well underway and is being manifested in all segments of the economy. This has generated significant new business for financial services providers across the board, be it banks, insurance firms, asset managers or capital market participants."