CBB launches key Islamic financial instrument

The Central Bank of Bahrain (CBB) is set to launch a key Islamic financial instrument aimed at providing a much-needed liquidity management tool to Islamic financial institutions.

The Islamic Sukuk Liquidity Instrument (Isli) has been jointly developed by the CBB and the Bahrain-based Liquidity Management Centre (LMC), an organisation which provides asset sourcing, structuring and market making capabilities.

ISLI has been designed to enable financial institutions, both conventional and Islamic, to access short term liquidity against Government of Bahrain Islamic leasing (Ijara) bonds (sukuk), issued by the CBB.

The new initiative reflects CBB’s continuing commitment and contribution to the Islamic finance industry and will further enhance Bahrain’s role as a world leader in the sukuk market.

“The development of the uniquely-structured ISLI represents a major breakthrough for the Islamic finance industry worldwide and will significantly enhance the sukuk market,” said Dr Abdul Rahman Saif, executive director, banking operations, at the CBB.

The availability of instruments such as Isli will help create a deeper and more liquid sukuk market, which requires a variety of short and long term instruments to enhance Islamic banks’ ability to efficiently manage their liquidity. It will also stimulate and promote a more active Islamic financial market.

The tripartite structure developed by the CBB and LMC will enable financial institutions holding BD-denominated CBB Ijara sukuk (short, medium or long term) to engage in transactions aimed at accessing short term liquidity.

“Conventional money markets have a wide range of instruments which allow banks to invest surplus funds or borrow funds in the short term. ISLI will provide similar flexibility to Islamic financial institutions as well as conventional institutions subscribing to CBB sukuk,” said Dr Saif.

The new instrument will complement the already existing and hugely popular sukuk offered by the CBB.

In 2001, the CBB became the first sovereign in the world to develop and issue sukuk. Since then, the CBB has an established calendar of Islamic debt paper, which comprises short term as well as medium to long term sukuk.

A BD5 million issue of Sukuk Al-Ijara, of 6-month tenor, and a BD6 million issue of Sukuk Al-Salam, of three-month tenor, are each offered once a month.

For the medium and long term tenors, the CBB has offered a total of 14 issues of Ijara sukuk, with a total value of $2.05 billion, of which US$1.27 billion is currently outstanding. The most recent one, a five-year US$350 million international issue now listed on the London Stock Exchange, was made in March 2008.

“We expect to bring the ISLI to market later this month,” said Dr Saif.

The contract has been endorsed by the Shari’a Boards of the CBB and LMC. Members of the CBB Shari’a Board are Shaikh Nizam Yaquby, Shaikh Dr Abdul Sattar Abu Ghuddah, Shaikh Mohsin Al Asfoor, Shaikh Abdulla Al Manea and Justice Taqi Usmani, while LMC’s Shari’a Board comprises Shaikh Dr Hussain Hamid, Shaikh Dr Ajeel Al Nashmi, Shaikh Adnan Al Qattan and Dr Abu Ghuddah.

“In the quest for developing the Islamic financial market, we have reviewed this instrument and found it to add significant value to the sukuk market,” said a CBB Shari’a Board statement.

Ahmed Abbas, LMC chief executive officer, thanked the CBB for its support in structuring Isli, which was a groundbreaking development for the Islamic finance industry.

“The CBB has committed considerable resources, including its real time national payment system (RTGS) and Securities Settlement System (SSS) to make ISLI an operationally efficient product,” said Abbas.

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."

Islamic Banks Safe says CBB

MANAMA: Islamic banks have been largely shielded from the US mortgage crisis, which may even open doors for expansion beyond traditional strongholds in Arab and Asian markets.

Central Bank of Bahrain (CBB) Governor Rasheed Al Maraj told the Reuters Islamic Finance summit yesterday that Islamic banks should have shunned collateralised debt obligations linked to subprime, or high risk, mortgages because such complex instruments do not comply with Muslim law.

Scholars vet every stage of a transaction to ensure compliance with sharia, making it unlikely that risks were lurking in the balance sheets of unsuspecting lenders, he said. "In Islamic banking, there is no black box that needs a genius to unwind it," Mr Al Maraj said.

Meanwhile, the CBB plans to renew $350 million worth of five-year Islamic bonds before July and does not expect a global credit crisis will hit pricing, Mr Al Maraj said.

The CBB will combine two Islamic bonds, or sukuk, expiring in April and May into a single bond priced at between 30 to 35 basis points above the London Interbank Offered Rate (Libor), Mr Al Maraj said.