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Commodity Murabahah set to draw more interest
[December 06, 2006]

Commodity Murabahah set to draw more interest


(Business Times (Malaysia) Via Thomson Dialog NewsEdge) COMMODITY Murabahah - the sale of specified commodities through an exchange on a cost plus profit basis - is expected to attract more interest locally next year.

In Islamic finance, Commodity Murabahah is investment of funds for a certain period of time supported by commodity trades as the underlying transaction. It was reported that Bank Negara and Bursa Malaysia are in the process of using the Murabahah instrument for its banking products with crude palm oil (CPO) as the underlying transaction tool. The product is expected to be available early next year. Such commodity-based Murabahah transactions are used in Europe and the Middle East, but by being CPO-based, this product will be the first of its kind.

"The main plus point of Commodity Murabahah is that it gives a pre-agreed net yield rate of return at the point of transaction and is Gulf Cooperation Council-compliant," RHB Islamic Bank chief executive officer Khalid Bhaimia said.

"The best way will be to find a suitable local commodity for trade in Commodity Murabahah. This will reduce transaction costs significantly and will encourage participation. It will also make the offering to the general public possible," he said. For its part, Hong Leong Islamic Bank general manager for capital markets, structured products and wholesale banking Aminnurllah Mustapha said: "We are looking to Bank Negara for the guidelines on Commodity Murabahah. Once set, HLiB's products will adhere strictly to regulations." For most financial institutions, the main concern in undertaking the product is finding a suitable local commodity for trading.


Commodity Murabahah uses commodities such as metals traded in the London Metal Exchange where the transaction cost will be higher if it is to be used for ringgit-based transactions.

Hong Leong Islamic general manager Ismail Aminuddin said the bank plans to introduce its Commodity Murabahah product by the first quarter next year. "When more banks have undertaken the product forward, maybe Bank Negara will look into a commodity that can be used for the exchange. Another outstanding issue is the liquidity of the local commodity," he added. Head of Islamic Banking at Standard Chartered Bank Malaysia Azrulnizam Abd Aziz said since the bank's introduction of Commodity Murabahah, market reaction has been positive. In July, Standard Chartered signed the country's first Islamic cross-currency swap deal worth US$10 billion (RM35.60 billion) with Bank Muamalat Malaysia, which uses Commodity Murabahah as the underlying transaction.

Copyright 2006 The New Straits Times Press (Malaysia) Berhad. Source: Financial Times Information Limited - Asia Intelligence Wire

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