Separate but converging efforts are underway in Islamic finance to help develop globally accepted alternatives to conventional repurchase agreements, as the industry tries to crack one of its greatest structural limitations.
In the last several years Islamic banks have grown faster than conventional ones, partly because of economic booms in the core regions for Islamic finance, the Gulf and southeast Asia. But the banks have largely lacked the collateralised money market tools which many bankers believe are essential for the industry’s long-term health and viability.
So far, Bahrain and Malaysia have been at the forefront of creating such tools but more efforts are needed, Jeddah-based Mohamed Ali Elgari, an industry expert who sits on over 80 sharia boards around the world, told Reuters. “Any successful structure has to satisfy the requirements of sharia, and the requirements of regulators, and the requirements of risk managers. To combine all these three factors, it’s very difficult.”