Shari’ah product for Standard
BANK LAUNCHES COMPLIANT HEDGING SERVICE FOR SOUTH AFRICAN CUSTOMERS It allows local businesses to hedge against exchange rate risk.
Standard Bank has launched South Africa’s first fully Shari’ah compliant hedging product under the ISDA Tahawwut Framework. The forward exchange contract (FEC) allows businesses to hedge currency risk in a Shari’ah compliant manner, through a dedicated Shari’ah Compliant Master Agreement.
The Tahawwut Master Agreement was developed by the International Swaps and Derivatives Association (ISDA) and the International Islamic Financial Market (IIFM) to allow risk to be managed through hedging services.
In essence, the Tahawwut Master Agreement is the framework suggested by the ISDA, which regulates the market at an international level, allowing 850 institutions in 67 countries around the world to now enter into Shari’ah compliant swaps and derivatives transactions.
“Standard Bank’s development of this product in South Africa will now allow local businesses to hedge against exchange rate risk – for the first time under an ISDA Agreement specifically designed to be in compliance with Shari’ah Law.
“Being able to manage risk without compromising the ethics of the owners or managers of the business will bring globally-compliant risk management services to a large and important segment of South Africa’s business community,” says Ameen Hassen, Standard Bank Head of Shari’ah Banking.
Globally, the Shari’ah Banking industry is worth over $2 trillion. Since conventional swaps and derivatives are not Shari’ah compliant, Shari’ah compliant financial institutions have not been able to use them.
While hedging in itself is not forbidden under Shari’ah Law, the manner in which the hedge is created can result in the hedge not being permitted under Shari’ah Law.
“Businesses require certainty in terms of price when purchasing their stock, especially when this stock is imported, in order for them to correctly price to their clients. Currency markets are volatile in nature and thus, FEC’s form an integral function to businesses that have exposure to currency risk.
“There have been a significant number of businesses within South Africa that have been requesting Shari’ah compliant products and a Shari’ah compliant FEC is vitally important to the running of these businesses,” continues Mr Hassen.
Rupert Brown, Manager, eFX Sales & Enablement, Global Markets at Standard Bank says: “The adoption of the ISDA Tahawwut agreement allows us to differentiate ourselves; it further entrenches our ability, through technology and innovation, to be able to diversify our product base to a full spectrum of our clients.”
“The launch of the forward exchange contract for the Corporate and Investment Banking division, recent launch of our Shari’ah compliant Fixed Deposit Account and our Shari’ah compliant Trade Finance Product, currently in development, marks the first steps to provide Shari’ah compliant services across all divisions,” says Mr Hassen.
Standard Bank has launched South Africa’s first fully Shari’ah compliant hedging product under the ISDA Tahawwut Framework.