Towards an Effective Shari’ah-compliant Repo Market: Challenges and Alternatives
The International Islamic Liquidity Management Corporation (IILM), in collaboration with major international Islamic finance bodies such as the Islamic Development Bank (IsDB), the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the International Islamic Financial Market (IIFM), the Islamic Financial Services Board (IFSB) and the International Shari’ah Research Academy for Islamic Finance (ISRA), organized its 5th Shariah Roundtable virtually “Towards an Effective Shari’ah-compliant Repo Market: Challenges and Alternatives” on 28 June 2021. The roundtable brought together more than 20 prominent Shari’ah scholars, policymakers, Islamic finance practitioners, and experts worldwide, notably from Bahrain, Kuwait, Malaysia, Nigeria, Qatar, Saudi Arabia, Turkey, United Arab Emirates, and the United Kingdom.
The roundtable provided an ideal platform from the Shari’ah, accounting, regulatory and legal perspectives in highlighting the urgent need for Shariah-compliant liquidity management tools in the market. The discussion also touched on the different aspects of the Shariah-compliant repo market. It also agreed on the acceptable and effective repurchase structures that met the requirements of the Shari’ah. This is in addition to the exchange of ideas, thoughts and shared experiences from the market that reflect Shari’ah, accounting, regulatory and legal perspectives in building a strong and effective cross-border repurchase market for the global Islamic finance.
The roundtable was divided into three focused sessions covering topics such as the heightened need for Islamic repo facilities, particularly given the Covid-19 pandemic, key implementation challenges faced by global Islamic banks, Shari’ah rulings in relation to cross-border Islamic repo facilities as well as legal and structuring challenges faced by the industry.
After successful and extensive discussions, the speakers agreed that the repurchase agreement, which is the focus of this roundtable, is one of the most effective tools for liquidity management. It is possible to design a structure that meets Shari’ah requirements and at the same time deliver a similar economic outcome. The speakers further agreed that creating an active repo market in which Islamic financial institutions can play a role depends almost entirely on finding such a solution.
The speakers expressed optimism that with further knowledge sharing and collaboration between industry stakeholders, particularly market practitioners and international Islamic finance institutions, innovative solutions that balance market demand and Shari’ah requirements can be formulated to elevate Shari’ah-compliant repo structures to a truly global, cross-border liquidity management tool.
They also agreed that the way forward is to think of a new Islamic instrument with its Shari’ah characteristics, considering all the variables and moving away from constraints of a conventional repurchase structure. This should be primarily market-led, taking into account new technology such as fintech to the extent possible.
Dr. Yussuf Adam Al Badani
International Islamic Liquidity Management Corporation (IILM)
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