Key Islamic standard for hedging launched

source : Gulf daily news

MANAMA: The International Islamic Financial Market (IIFM) and the International Swaps and Derivatives Association (ISDA) have launched the ISDA/IIFM Mubadalatul Arbaah (Profit Rate Swap) product standard to be used for Islamic hedging purposes.

The Mubadalatul Arbaah (MA) standard follows on from the ISDA/IIFM Tahawwut (Hedging) Master Agreement and provides the industry with a framework for Islamic risk mitigation.

The launch of the Tahawwut Master Agreement as the template for Sharia-compliant risk management was officially announced by Central Bank of Bahrain (CBB) in March 2010.

“Islamic Financial Institutions (IFIs) have largely shown resilience in the current difficult financial environment and some are even going through an expansion phase,” IIFM chairman and CBB executive director of banking supervision Khalid Hamad said.

“However, due to the inter-linkages with the global financial system, the balance sheet of IFIs are exposed to fluctuation in foreign currency rates and also cash flow mismatches due to fixed and floating reference rates.

“IIFM recognises the importance of this critical segment at an early stage and undertook the challenge of developing global Islamic hedging standards in collaboration with ISDA.

“I am confident that such joint efforts will continue in the future for the benefit of the industry,” he said.

“ISDA is pleased to continue its partnership with the IIFM as part of its own on-going efforts and commitment to building safe and efficient OTC hedging markets, across both global and Islamic financial markets” said ISDA chief executive Robert G Pickel.

“The ISDA/IIFM Tahawwut Master Agreement was a major milestone in the development of risk management in Islamic finance and the development of the ISDA/IIFM confirmation templates for Islamic Profit Rate Swaps is a natural step in the evolution and development of the market,” he said.

read more at : http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=326736

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