CBB hosts IIFM meeting on Islamic Hedging Products and its Standardization

13 December 2010
Source : International Islamic Financial Market

The Central Bank of Bahrain (CBB) hosted a meeting of the International Islamic Financial Market (IIFM) Shariah Advisory Panel and selected IIFM member banks active in Islamic hedging/risk mitigation segment of the Islamic finance industry.

“The Tahawwut Master Agreement governs the most widely required Islamic hedging products and at the same time it provides basis for further standardization in the hedging segment which is one of the most critical and essential area for risk mitigation. We at CBB are pleased to host this prestigious meeting and are thankful to the scholars, the market practitioners and representatives from Association of Islamic Banks in Malaysia for their support in Islamic financial market unification”, said Mr. Khalid Hamad, Executive Director-Banking Supervision at CBB and Chairman of IIFM.

The purpose of the meeting was to have deliberation between Shariah scholars and market practitioners on Islamic hedging products which are essential for risk mitigation of real assets and real economic activity. Mr. Ijlal Alvi, CEO of IIFM advised, “The main aim of the meeting is to obtain guidance from eminent scholars on acceptable Islamic hedging products and the industry’s standardization requirements for this important area of Islamic finance”.

The meeting was attended by honorable scholars including Shaikh Dr. Ali Muhyealdin A. Al Quradaghi, Shaikh Nizam Yaquby, Shaikh Esam Ishaq, Shaikh Dr. Muhamad Akram Laldin, Shaikh Dr. El Tegani Abdul Gadir and Shaikh Dr. Mohammed Burhan Arbouna. In addition, Shaikh Dr. Abdul Sattar Abu Ghuddah, Shaikh Dr. Mohammed Daud Baker, Shaikh Dr. Imran Usmani and Shaikh Dr. Yosuef A. Al Shubaily also supported the meeting.

On the banks side, senior representatives from Credit Agricole Corporate and Investment Bank, Kuwait Finance House-Bahrain, HSBC Amanah, Al Baraka Banking Group, ABC Islamic Bank, Al Khaleeji Commercial Bank and Royal Bank of Scotland were present. Moreover, Standard Chartered Saadiq, Al Hilal Bank, Abu Dhabi Islamic Bank and National Bank of Kuwait-Bahrain also provided their input. The discussion was led by IIFM, while Clifford Chance LLP provided technical support as the external legal counsel.

The attendees noted the significance of the Tahawwut Master Agreement (TMA) as a framework document where general terms and conditions are defined. Most importantly, the close-out mechanism contained in the agreement was appreciated by the scholars and industry practitioners.

The TMA has been developed based on documentation architecture which allows further standardization in the Islamic hedging segment. Since standardization is a very comprehensive process and has to be carried out in different stages as required by the industry, the TMA is the first step of a much larger block which sets the stage for standardization of product schedules, templates and annexes as well as legal provisioning of close-out netting in various Islamic jurisdictions. The legal provisioning may also eventually allow the industry to address the Basel requirement of regulatory capital treatment for Islamic hedging transactions.

Mr. Alvi thanked the CBB for hosting this important meeting and for playing an instrumental role in IIFM’s pioneering efforts in the Islamic hedging/risk mitigation segment of the Islamic finance industry.  He also thanked the scholars and member banks for their valuable contribution and taking part in this meeting which is directed towards achieving the common goal of having a robust and unified Islamic finance industry.