Commodity Murabaha Attracting Investors

After almost three decades of the "International Commodity Murabaha" (Islamic commodity trade finance based on the cost-plus financing principle), both regulators and market players are revisiting the structures and tightening any loopholes which might be deemed contrary to Islamic investment principles.

This is a major development given that the global commodity Murabaha market is in excess of $1.2 trillion. In April 2007, Bank Negara Malaysia, the central bank, together with the Securities Commission of Malaysia and Bursa Malaysia (the stock exchange) and industry players, launched the Commodity Murabaha Program (CMP), which will act as a liquidity management scheme for Islamic bank overnight and short-term deposits, using crude palm oil as the underlying commodity traded for investment. Bank Negara has executed CMP master agreements with eight Islamic banking institutions to promote the use of the instrument for liquidity management.

Last month Saudi Hollandi Bank became the first Saudi financial institution to sign up to the CMP.

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