The International Islamic Financial Market, founded by the central banks of Bahrain, Indonesia and Malaysia, plans to create Shariah-compliant repurchase agreements to help Islamic banks manage funds and boost trading.
The IIFM, a Bahrain-based standards-setting body for Islamic markets, wants to introduce repos that don’t violate the religion’s ban on interest. It has proposed allowing third parties to act as intermediaries between buyers and sellers of sukuk used as collateral for short-term funds.
Regulators from Bahrain to Malaysia are trying to expand products available to Islamic banks and borrowers. The repurchase agreements recommended by the IIFM would use a profit rate, unlike non-Shariah repos, where traders post securities as collateral for cash and agree to buy them back at a specified price and date, earning or paying the difference as interest.
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