Thomson Reuters has launched its daily pricing benchmark, the Islamic Interbank Rate (IIBR) to address, it claims, the widespread unease over using global interest rates in the industry.
According to Sheikh Yusuf De Lorenzo, chairman of the IIBR's Shari'ah Board, the IIBR also reflects different underlying fundamentals because the contributing banks are based in emerging economies and less exposed to debt-laden developed economies.
The IIBR was developed over two years, with much of the development process focused on sorting out the complexities of creating a daily pricing benchmark and developing the technical and reporting systems required, rather than confronting the Shari'ah issues of the IIBR.
Finding the first batch of contributor banks with the capabilities of reporting several different tenors on a daily basis was time consuming. According to De Lorenzo there are 16 contributing banks. De Lorenzo also told The Islamic Globe that Standard Chartered Saadiq and HSBC Amanah also contributed.
The IIBR will now work to broaden the contributing banks beyond the GCC, where the current contributors are based, and expand the currencies for which the rates are available, currently limited to US dollar. Malaysian banks have expressed interest in joining, which would be a key market for any global expansion and an indication of the market's acceptance for the IIBR, since Malaysia's Islamic Interbank Money Market provides a domestic pricing benchmark.
It will be crucial that the IIBR becomes the pricing benchmark for Islamic banks' interbank financing in the future or else the IIBR will become a white elephant. De Lorenzo said that Islamic banks should jump on the chance to switch from LIBOR to IIBR and that the process had taken lessons in generating buy-in based on the 1986 launch of LIBOR. The most recent rates provided by Thomson Reuters in an FAQ were largely in line with comparable LIBOR rates.
© The Islamic Globe 2011
