Sharia banks may get hedge fund­ing tool next year

The Pak Banker - - Company& -

JAKARTA: Mem­ber coun­tries of the In­ter­na­tional Is­lamic Fi­nan­cial Mar­ket (IIFM) may soon en­joy a hedg­ing fa­cil­ity to re­duce risks of fi­nan­cial trans­ac­tions, of­fi­cials say.

The IIFM's Board of Di­rec­tors agreed on Mon­day to im­ple­ment a hedg­ing fa­cil­ity for the sharia bank­ing in­dus­try in the first half of next year amid global cur­rency con­cerns.

Bank In­done­sia's di­rec­tor for sharia bank­ing, Mulya Sire­gar, said that IIFM mem­ber coun­tries would sign a mas­ter agree­ment, called a tahawwut agree­ment, to ac­com­mo­date the hedg­ing fa­cil­ity.

"The tahawwut agree­ment to be signed by IIFM mem­ber coun­tries will min­i­mize time and costs and make trans­ac­tions faster," he told re­porters at 23rd IIFM Board of Di­rec­tors Meet­ing at the cen­tral bank's of­fices in Jakarta.

The agree­ment, ac­cord­ing to Mulya, was needed to ease the risks of cur­rency-re­lated trans­ac­tions amid cur­rency con­cerns af­fect­ing both de­vel­oped and emerg­ing economies.

Hedg­ing is a risk man­age­ment strat­egy used to limit or off­set the prob­a­bil­ity of loss from fluc­tu­a­tions in the prices of cur­ren­cies, com­modi­ties, cur­ren­cies or se­cu­ri­ties.

Ijlal Alvi, IIFM's CEO, said that bank­ing trans­ac­tions were greatly in­flu­enced by risks from ex­change rate fluc­tu­a­tions, and hedg­ing fa­cil­i­ties were thus needed to pro­tect trans­ac­tions from cur­rency risks. IIFM is a global stan­dard­iza­tion body that fo­cuses pri­mar­ily on the stan­dard­iza­tion of Is­lamic prod­ucts, doc­u­men­ta­tion and re­lated pro­cesses. The mem­ber­ship of the Bahrain-based or­ga­ni­za­tion is com­prised of rep­re­sen­ta­tives from 50 cen­tral banks and fi­nan­cial in­sti­tu­tions from many coun­tries, in­clud­ing Su­dan, Brunei Darus­salam, Pak­istan, Malaysia, Bahrain and Kuwait. -PB News

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