BNM launches murabaha instrument to manage liquidity

BANK Negara Malaysia central bank launched last Friday [Jun 19, 2009]a murabaha instrument to manage liquidity in Islamic financial markets. The central bank said the murabaha notes, certificates of indebtedness arising from a deferred mark-up sale of assets, would increase efficiency and flexibility in managing liquidity in the financial system by diversifying the Shariah concept used in the bank's Islamic monetary instrument, reports Reuters. The report said, under a murabaha deal, an Islamic bank buys an asset from a third party and sells it to its customer at cost plus profit. This allows the bank to extend financing without charging interest, which is forbidden by Islamic law. The murabaha notes would be used in place of the asset. Banks, after successfully bidding for the paper, would park their funds at the central bank for the duration of the notes. The notes would be issued through competitive auctions, the central bank said on its website.