IIFM pushes for standardization in Islamic finance

The IIFM will be holding an industry consultation meeting to assess the requirements for standardizing Islamic syndicated finance documentation

The International Islamic Financial Market (IIFM) is working on a standard suite of capital markets-related documentations as it continued to push for the development of Islamic finance. This year, IIFM will be holding an industry consultation meeting to assess the requirements for standardizing Islamic syndicated finance documentation.

Also, this year, in coordination with its hedging standards joint partner, International Swaps and Derivatives Association (ISDA), IIFM will carry out market consultation to assess the requirements for additional Islamic hedging products, smart contracts and other related matters, which can eventually lead to additional joint standards in the future. 

The Bahrain-based IIFM is a standard-setting body focusing on the standardization of Shariah-compliant financial contracts and product templates relating to Islamic financial services. Its board of directors, during their 40th meeting held in Dubai and announced on July 9, cited IIFM’s efforts in facilitating the unification and harmonization of the Islamic finance industry by producing globally standardized Shariah-compliant financial documentation and product confirmations that are contributing massively in the systematic and robust development of the industry.

The meeting was attended by representatives from IIFM’s founding members, namely the Central Bank of Bahrain, Bank Indonesia, Autoriti Monetari Brunei Darussalam, Labuan Financial Services Authority and the Islamic Development Bank, in addition to representatives from leading financial institutions on the IIFM board. 

IIFM has so far published standards catering to liquidity management, hedging, margin maintenance and trade finance participation, which offer Islamic financial institutions a complete set of Shariah-wise, widely accepted and legally strong financial documentations and product confirmations, benefitting the users with significant cost reductions, ease of execution and greater transparency resulting in an increase in transactional volumes.

In January this year, IIFM standardized the framework for Shariah-compliant participation arrangements relating to trade in collaboration with the Bankers Association for Finance and Trade (BAFT) and released the IIFM-BAFT master participation agreements (MPAs) for unfunded and funded trade finance transactions. The MPAs have been received positively by the industry and are expected to provide a boost to Shariah-complaint trade-related activity by making transaction execution easier for financial institutions and enabling them to participate in large-scale trade finance transactions.

Later this year, IIFM expects to come out with a capital markets-related sukuk al ijara standard suite of documentation. The market consultation exercise with the global working group members concluded in April, and the Shariah guidance and approval process will now commence. In the second phase, IIFM intends to also develop sukuk al ijara standard documentation covering the securitization market.

The working group consultation on perpetual tier 1 and senior unsecured sukuk al mudaraba standard suite of documentation is currently ongoing and is expected to be completed by the end of the third quarter of 2019, after which Shariah guidance and approval exercise will commence.  

IIFM has also started the translation work on its standards and is expected to come out with the French versions by early 2020 to cater for French-language jurisdictions. IIFM also intend to translate its standards into Bahasa Indonesia in the future. It is likewise looking to develop training materials for its standards in collaboration with consultants and training institutes to offer technically-oriented workshops to the users.

IIFM chief executive Ijlal Ahmed Alvi says the group will also discuss global regulatory developments with regards to benchmark reforms – the replacement of interbank offering rate with alternative risk-free rates, which is a major development, as well as the Islamic finance industry’s need to be prepared when the implementation by the European and North American regulators commences in 2021.

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