The International Islamic Financial Market (IIFM) and the International Swaps and Derivatives Association (ISDA) have launched an ISDA/IIFM Mubadalatul Arbaah (Profit Rate Swap) product standard, to be used for Islamic hedging purposes.
The Mubadalatul Arbaah (MA) standard provides the industry with a framework for Islamic risk mitigation.
The standard, which allows bilateral exchange of profit streams from fixed rate to floating rate or vice versa, was developed under the guidance and approval of the IIFM Shari’ah Advisory Panel, in coordination with the external legal counsel Clifford Chance as well as market participants globally.
Khalid Hamad, chairman of IIFM and executive director of Banking Supervision at Central Bank of Bahrain said: “Islamic Financial Institutions (IFIs) have largely shown resilience in the current difficult financial environment and some are even going through an expansion phase. However, due to the inter-linkages with the global financial system, the balance sheet of IFIs are exposed to fluctuation in foreign currency rates and also cash flow mismatches due to fixed and floating reference rates. IIFM recognizes the importance of this critical segment at an early stage and undertook the challenge of developing global Islamic hedging standards in collaboration with ISDA. I am confident that such joint efforts will continue in the future for the benefit of the industry.”
Robert G. Pickel, CEO at ISDA said the organisation “is pleased to continue its partnership with the IIFM as part of its own on-going efforts and commitment to building safe and efficient OTC hedging markets, across both global and Islamic financial markets.”
“The ISDA/IIFM Tahawwut Master Agreement was a major milestone in the development of risk management in Islamic finance and the development of the ISDA/IIFM confirmation templates for Islamic Profit Rate Swaps is a natural step in the evolution and development of the market.”