Shariah banks standardise murabahah terms

Islamic banks in the country have agreed to standardise terms for murabahah contracts to help facilitate interbank transactions, an industry body said on Apri 15, reports Reuters.
The Association of Islamic Banking Institutions Malaysia (AIBIM) said its 20 members will adopt two standardised documents for interbank transactions that involve deposit taking and placement.
"The success of commodity murabahah-based instruments will depend a lot on the existence of a standardised document as well as a universally acceptable structure and widely recognized by the market. The two standardised documents would foster greater transparency, robustness, operational efficiencies and consistency in Islamic financial transactions," AIBIM president Datuk Zukri Samat said in a speech.
The report added that commodity murabahah enables shariah lenders to create financing transactions which involve specific assets, fulfilling Islam's demand that all deals must involve real economic activity.
When an Islamic bank uses commodity murabaha to provide financing, it will first buy an asset which it then sells to the borrower. The borrower then sells the commodity to a third party using the bank as its agent, and it receives payment and secures the financing it had sought.
The International Islamic Financial Market, an industry body backed by the central banks of several Muslim countries, has estimated that the global commodity murabahah market is valued at more than US$100 billion (RM360.78 billion).
But some religious scholars have criticised the structure, saying it resembles conventionalbased lending instruments.
AIBIM's Zukri said the use of the standardised terms would create a critical mass of commodity murabahah deals ahead of a plan by the Malaysian stock exchange for a spot commodity trading platform.
Bursa Malaysia is expected to launch in July the Commodity Murabahah House, which uses crude palm oil as the underlying commodity to facilitate Islamic financing based on the murabaha concept.