Bank Negara Announces New Liquidity Instrument
01 July, 2012
Malaysia's central bank, Bank Negara Malaysia, has announced a new Islamic monetary instrument, the collateralised murabahah. This is a Shari'ah?compliant financing instrument backed by assets in which the financier has the right to sell the asset should the client fail to repay the financing. It combines the widely accepted murabahah financing transaction with sukuk as the pledged asset to back the transaction.
Bank Negara describes collateralised murabahah as a new low credit risk financial instrument that enables collateralised interbank transactions in the Islamic money market in Malaysia. It is intended to increase the diversity of existing liquidity management tools and further promote greater liquidity in the Islamic financial market. Collateralised murabahah can be used by Islamic financial institutions to obtain liquidity from the Bank under the standing facility and it will also be expanded to facilitate daily Islamic money market operations in the interbank market.
Initially this will be an overnight facility, but it is expected to be extended to long tenors in the near future. Funding is ringgit only, but collateral can be denominated in other currencies.
Shortly after this announcement Al Rajhi Bank Malaysia introduced Collateralised Commodity Murabahah-i (CCM-i) as a new instrument for its treasury use, claiming to be the first Islamic financial institution to adopt such an instrument in managing its daily money market transactions. The Bank's CEO commented, ‘The introduction of CCM-i is another important milestone for Al Rajhi Bank as it has met the requirements of the Shari'ah standards of both Malaysian and Saudi Arabian scholars.' This has apparently been achieved by precluding the principles of Bai' Al Inah (sale and buyback), Bai' Dayn (trading of debt), Wa'ad (undertaking) and Tawarruq Munazzam (pre-arranged transaction between multiple parties).