Central Bank of Bahrain's new liquidity management tool aims to promote Islamic banking

The tool is based on the "Single Binding Wa'ad based structure"

  
Undated handout photo shows the Bahrain Central Bank building in Manama. REUTERS/Central Bank of Bahrain/Handout

Undated handout photo shows the Bahrain Central Bank building in Manama. REUTERS/Central Bank of Bahrain/Handout

The Central Bank of Bahrain (CBB) has launched a new liquidity management tool for Islamic retail banks to promote the development of Islamic banking in the kingdom.

The tool based on the “Single Binding Wa’ad based structure” is developed by the International Islamic Financial Market (IIFM) and International Swaps and Derivatives Association (ISDA) and represents a Shariah-compliant alternative to Foreign Exchange Forward contracts

The single binding Wa'ad based structure involves one party who is looking for a hedge to purchase a specified currency at a future date based on the rate determined today, providing a binding Wa'ad (promise/undertaking) to purchase such currency.

The CBB emphasizes that providing such a Shariah-compliant product will contribute to the diversification of Islamic investment opportunities and enhances the kingdom’s position as a financial center for Islamic banking, a statement from the Central Bank said.

(Writing by Gerard Aoun; editing by Seban Scaria)

(gerard.aoun@refinitiv.com)

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© ZAWYA 2019


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