29/3/07 (The Star) KUALA LUMPUR  - Bank Negara yesterday introduced an Islamic instrument that uses crude palm oil (CPO) as its underlying asset to manage short-term liquidity in the Islamic inter-bank money market.

The central bank also launched the first global Islamic derivative master agreement (IDMA), which aims to develop Islamic hedging products for the Islamic financial market to mitigate investment risks. 

The Commodity Murabahah Programme (CMP) introduced yesterday is unique to Malaysia and the first-ever commodity-based transaction that uses CPO as its underlying asset.

“As commodity murabahah is widely used in other Islamic centres, it is envisaged that this CMP will promote increased linkages between Malaysia and these centres,” Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said.

Bank Negara executed the CMP master agreements with eight Islamic banking institutions, including three foreign-owned ones, to promote the use of the instrument for liquidity management.

 
Tan Sri Dato Dr Zeti Akhtar Aziz at the forum on Wednesday.
The institutions were Al-Rajhi Bank, Kuwait Finance House, Asian Finance Bank, Bank Islam, Bank Muamalat, CIMB Islamic, RHB Islamic and EON Islamic.

Speaking at the Global Islamic Finance Forum yesterday, Zeti said the implementation of the IDMA was expected to improve the risk management practices, balance sheet management, increase fund mobilisation efficiency and enhance investment banking capability of the Islamic banking institutions.

“With the introduction of IDMA, the rights and obligations of contracting parties are clearly stated, thus creating an environment that is more transparent,” she said.

As the IDMA also incorporated best practices in market conduct, Zeti said it served as an important catalyst for future linkages between financial markets that offer Islamic financial market instruments.

“Standardisation and uniformity are critical to the further growth and advancement of the Islamic capital market. With the IDMA, financial institutions would be able to speed up derivative transactions. This would create more market liquidity and greater transparency in market dealings,” she added.

Zeti said Bank Negara wanted to diversify the issuance concept of the Islamic monetary notes from being based on Bai Inah and Ijarah into murabahah. Currently, the outstanding amount of the respective notes is RM8bil.

“This initiative is the continuation from the commonly murabahah acceptance initiative as the issuance involves the securitisation of the acceptance facility,” she said.

Zeti said there were several benefits in issuing monetary notes under such a structure.

“It provides Islamic financial institutions an additional instrument to manage liquidity risk on a short-term basis. It is also a financial instrument whose structure has been widely used for retail banking and syndication products in the Middle East,” she said.

In her address Islamic Finance: The New Silk Road, Zeti said the new route also carried flows of direct investment, portfolio capital, private equity and human capital.