Nasdaq Dubai has taken another step towards Dubai's goal of becoming a global hub for the Islamic economy by launching a trading platform for murabaha or asset-backed Sharia-compliant financial instruments.
In partnership with Emirates Islamic Bank (EIB), Nasdaq Dubai has been running a pilot scheme in murabaha trading since last September. The platform went public yesterday, hoping to carve a niche in a daily market for murabaha trading that experts value at US$5 billion to $10bn, much of it conducted in London.
“We are open for business,” said Hamed Ali, the Nasdaq Dubai chief executive.
Jamal bin Ghalaita, the chairman of EIB, said: “This is creative, but asset backed.”
The launch of the platform is part of the initiative by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, to make the emirate a capital of the global Islamic economy over the next two years.
The Crown Prince of Dubai and the patron of the initiative, Sheikh Hamdan bin Mohammed, said that the new platform represents an ideal example of the importance and effectiveness of collaboration among various business entities in Dubai to support the government’s Islamic economy vision.
“The strategy we launched a few months ago to position Dubai as the capital of Islamic economy is moving forward according to plan, and simultaneously on various sectors … and within the required time frame. We will launch further initiatives in the near future according to the strategic plan which will create new products and add value to various institutions active in the Islamic economy sectors,” Sheikh Hamdan said.
Murabaha financial instruments are used by banks to finance client transactions, ranging from property purchase and loans to leasing deals and business expansion financing. They are backed by real assets and provide fixed rates of return for investing institutions.
Transactions on the new platform involve unlisted “wakala” certificates, with EIB acting as the agent in the transaction. The new platform expects to attract other participant banks in the near future, Mr Ali said.
The certificates are held in Nasdaq Dubai’s central securities depository, and are bought and sold “in minutes” by EIB and customers, throughout the bank’s brokerage arm.
There are no current plans to promote indexes or publish volume figures of murabaha traded on the new platform, although this is an option for the future, Mr Ali said.
He said that the new platform offered several advantages over current murabaha trading: “This is a unique platform. It offers speed, commercial and technological efficiency, and a fixed price. It also guarantees liquidity, no spread differential and low cost for users. This will help us meet the liquidity challenge in Islamic finance.”
He declined to comment on users’ cost, which he said was “dynamic”. Sharia compliance will be guaranteed by EIB’s Sharia board.
Mr bin Ghalaita said murabaha transactions were unlike collateralised debt obligations, the financial instruments many experts blamed for sparking the global financial crisis in 2008. “They are backed by real assets. You cannot have a synthetic risk in a Sharia-compliant system,” he said.
Since the new system was first trailed last year, more than Dh2 billion of financing has been extended to more than 8,000 clients on the platform.
“The aim is to make Dubai the centre for regional and global murabaha transactions. Our advantages are innovation, efficiency and the time zone,” Mr Ali said.
Financial experts believe up to $10bn of murabaha are traded on global markets daily, much of that in London through the London Metals Exchange. Currently a maximum of $4bn goes through regional institutions.
Dubai Multi-Commodities Centre (DMCC) already offers murabaha transactions on some commodities. Mr Ali said the new Nasdaq Dubai platform would be complementary with the DMCC’s service.
fkane@thenational.ae
Follow us on Twitter @Ind_Insights
