Meeting addresses growing requirement for Islamic Credit Support Arrangements in the GCC, Europe, North America and Far East

Manama, 20th October 2015

The Bahrain Economic Development Board (EDB) hosted a Market Consultative Meeting on Islamic Credit Support Arrangement in association with the International Islamic Financial Markets (IIFM) and its Islamic hedging joint-partner International Swaps & Derivatives Association (ISDA) in the Kingdom of Bahrain.

Credit Support Arrangement (CSA) is one of the key documentations for risk management where counter-parties transactional risk is managed through collateral and margin maintenance mechanism. The Islamic CSA will be developed under the already published ISDA/IIFM Tahawwut Master Agreement for Islamic hedging transactions. There is a growing requirement from regulators for Islamic CSA in the GCC, Europe, Far East, North America & other regions. As the Islamic finance industry grows in scale, investors are increasingly taking larger positions, creating a requirement for mechanisms to manage that risk.

In accordance with the IIFM standard agreements development process, participants of consultative meeting  included Shari'ah scholars, regulators, banks, law firms, ISDA representatives and other market practitioners to provide guidance on technical, Shari'ah and legal issues to be tackled in the development of a standard Islamic CSA.

The main focus of the meeting was on the impact of new regulations from the Basel committee and other regulators on certain transactions' clearing requirements and in case of un-cleared transactions, the requirement of additional collateral and margin maintenance. The participants discussed how, given the global expansion of Islamic banking, certain Islamic transactions may be impacted if proper arrangements and master agreements are not put in place.

The participants also explored various Shari'ah compliant alternatives which may be used to develop Islamic Credit Support Arrangement under the ISDA/IIFM Tahawwut Master Agreement, and how the arrangement needs to be efficient to cater for international law requirements of insolvency and close-out netting. The meeting has provided direction to IIFM to work on the development of Islamic CSA.  

Mr. Khalid Al Rumaihi, Chief Executive of the Bahrain EDB, commented:

"We are delighted to be playing a role in such a high profile consultative meeting. IIFM plays a vital role in the development of the industry not just here in Bahrain, but around the world and we firmly believe that what is good for the international Islamic finance industry is good for Bahrain.

"As the Islamic finance industry around the world continues to expand, it needs to evolve if it is to thrive in the future.  Enabling institutions to manage risk effectively is important in developing and growing the sector - and doing so in a way that does not compromise the stability of the financial sector."

Mr. Ijlal Ahmed Alvi, Chief Executive of the IIFM said, "The expansion of Islamic finance industry across the globe has not only resulted in development of new segments such as risk mitigation or Islamic hedging 'Tahawwut' but has also resulted into new regulatory requirements such as Basel III and other regulators' requirements of taking credit support/collateral including margin maintenance which is essential for certain transactions for all banks including Islamic financial institutions. The consultation on Islamic CSA and its subsequent standard development jointly by IIFM and ISDA will lead to another landmark achievement in creating a robust Islamic finance industry from the perspective of Shari'ah harmonization, market practices as well as creation of legal certainty i.e. law reforms".

"IIFM is grateful to EDB for its support and thankful to all the attendees including Shari'ah scholars, regulators, banks, law firms, ISDA and other market practitioners from GCC, Europe, Far East, North America and other jurisdictions for their active participation in this initiative", said Mr. Alvi.  

-Ends-

About The Bahrain EDB
The Bahrain EDB is a dynamic public agency with an overall responsibility for attracting inward investment into Bahrain, and is focusing on target economic sectors in which the Kingdom offers significant strengths.

Key areas of focus include manufacturing, ICT, tourism, logistics and transport, and financial services. The Financial Services sector in Bahrain is particularly strong and the EDB supports in the continuing growth of the banking industry and key sub-sectors, including Islamic Finance, Asset Management, Insurance and Re-Insurance.

For more information on the Bahrain EDB visit www.bahrainedb.com; for information about Bahrain visit www.bahrain.com

Further information
May Taher, Bahrain Economic Development Board
Tel: +973 17 589 972, Email: internationalmedia@bahrainedb.com  

About The International Islamic Financial Markets (IIFM)
IIFM is a standard-setting organization for the Islamic Financial Services Industry focusing on standardization of Islamic financial contracts and product templates relating to the Capital & Money Market, Corporate Finance and Trade Finance segments of the industry.

IIFM's plays its role in market unification by developing best practices at the global level and achieving Shari'ah harmonization through its efforts for creation of a robust, transparent and efficient Islamic finance industry.

It was founded in 2002 by the collective efforts of the Islamic Development Bank, Autoriti Monetari Brunei Darussalam, Bank Indonesia, Central Bank of Bahrain, Central Bank of Sudan and the Bank Negara Malaysia (delegated to Labuan Financial Services Authority) as a neutral and non-profit organization. Besides the founding members, IIFM is also supported as member by certain regulatory and government bodies such as State Bank of Pakistan, Dubai International Financial Centre, Indonesia Financial Services Authority, The National Bank of Kazakhstan, and by a number of international and regional financial institutions and other market participants.

Given IIFM growing presence as a key standard-setting body, IIFM Board of Directors (BoD) in its 31st board meeting held during 2014, made a strategic decision to expand IIFM scope of work as it is the only organization which develops standardized Islamic financial contracts and product templates. The BoD approved the inclusion of Corporate Finance & Trade Finance segment in addition to existing focus of Capital & Money Market standard agreements and products templates.  This to further enhance the development of Islamic financial industry globally through its documentation and Islamic products unification efforts which are much needed for a robust, transparent and vibrant industry.

 To date IIFM has published number of key Standard Master Agreements, including:

§  IIFM Master Collateralized Murabahah Agreement & its Operational Guidance Memorandum

§  Interbank Unrestricted Master Investment Wakalah Agreement & its Operational Guidance Memorandum

§  ISDA/IIFM Tahawwut (Hedging) Master Agreement & Explanatory Memorandum

§  Mubadalatul Arbaah (Profit Rate Swap) Standard Documentation (Single Sale Structure)

§  Mubadalatul Arbaah (Profit Rate Swap) Standard Documentation (Two Sale Structure)

§  Master Agreements for Treasury Placement & Structure Memorandum

IIFM is also in the process of developing several important documentation and product standards related to the Islamic financial market. It has also published global Sukuk reports (four editions) and organizes a number of industry awareness seminars and workshops.

For more information on IIFM visit www.iifm.net

Further Information 
Usman M. Naseer, International Islamic Financial Markets (IIFM)
Tel: +973 17500161
Email: usman.naseer@iifm.net

© Press Release 2015