Bank Islam Malaysia (Bank Islam) and Bank Muamalat Malaysia (Bank Muamalat) broke new ground in Islamic finance last week agreeing to execute a derivative master agreement to document Islamic derivative transactions.
The document is the first industry initiative in the world to standardise a document governing Islamic derivative transactions. In particular, this is part of the Malaysian Financial Market Association’s (Persatuan Kewangan Malaysia) initiative with participation from all Malaysian Banks.
Bank Islam’s managing director, Dato’ Zukri Samat, says that the objective of the agreement is to standardise the document which will lead to greater transparency in market dealings in derivative transactions. As a result, it will also create more liquidity with the participation of both Islamic and conventional banks, hence elevating Malaysia as a global Islamic hub.
“With this collaboration, we will be able to improve our risk management practice, balance sheet management, increase fund mobilisation efficiency and enhance our investment banking capability, to name a few,” he says.
Bank Muamalat was represented by Dato’ Abdul Manap Abd. Wahab, its CEO, who says, “The potential market for Shariah compliant derivatives is a new and exciting area for both banks. We look forward to addressing the unique set of challenges and opportunities in documenting these transactions and are delighted to be working closely with Bank Islam to this end.”
Malaysia has the largest Islamic bond market in the world and according to credit-ratings agency Moody’s Investors Service, about $30 billion of the $41 billion in Islamic bonds issued globally since 1996 have been arranged and issued in Malaysia.
Globally, there are about $250 billion worth of assets in Islamic banks and the total is growing at 15 per cent a year. Moody’s estimates an additional $300 billion will be in Islamic mutual funds.