Islamic finance standards amended
DFM publishes final version of ‘Standard on Hedging against Investment and Finance Risks’
Dubai Financial Market (DFM) said it has officially published the final version of its Standard on Hedging against Investment and Finance Risks, the first comprehensive standard of its kind, as part of the DFM’s constant efforts to further enhance the guiding framework of Islamic finance and capital markets.
This standard is the newest addition to DFM’s Shariacompliant standards, which include Standard on Stocks and Standard on Sukuk issued in 2007 and 2014 respectively, the DFM said in an emailed statement.
The key amendments and add-ons to the draft of the standard are adding two types of risks, which are among the most significant risks in Islamic finance and investment. These are the property risk, which must be borne by the owner so that he becomes liable for the damage or loss of his property, and the reputational risk, which relates to Sharia incompliance.
The amendments also emphasise that when the remaining unpaid instalments become due as a consequence of some failure in debt repayments, the nature of the finance originally given has to be taken into consideration, for the creditor is not allowed to receive more than the amount of debt owed.
The amendment also emphasises the admissibility of the penalty clause only in Istisna, supply contracts and labour-lease contracts, excluding the contracts that result in a monetary debt owed by the debtor.
The changes further validate the letter of guarantee and the documentary credit are meant to address the risk of non-payment.
It also emphasises the admissibility of the third-party guarantee in contracts of partnerships, Mudaraba and agency in investment, provided no link is made between this guarantee and the contract of partnership or Mudaraba.
“Building upon what has been achieved in the past, the official launch of the Hedging Standard, combined with the previously issued Stocks and Sukuk Standards, will strengthen the framework environment for the Islamic finance sector,” Eisa Kazim, Chairman of DFM, said in a statement.