UK bank, Standard Chartered, with its strong focus on emerging markets, has made a strategic move in Malaysia that will allow it to offer Shariah-compliant derivatives c
UK bank, Standard Chartered, with its strong focus on emerging markets, has made a strategic move in Malaysia that will allow it to offer Shariah-compliant derivatives contracts to investors. The new service, subject to regulatory approval, will be offered through a partnership with Bank Islam Malaysia Bhd., reported Bloomberg this week. Shariah-compliant products, which as their name suggest must adhere to Shariah Law, are not allowed to trade in debt and pay interest as Western bonds do, and must be backed by a real underlying asset; in the case of sukuk bonds, this underlying asset is palm oil. As a result of such strict compliance, there has been a lack of Shariah-compliant products in Malaysia. This new offering by Standard Chartered will allow investors to buy contracts to hedge against price fluctuations in interest rates and commodities such as rice and oil. Bank Islam Malaysia Bhd., will, in addition, offer swaps for investors to take positions on either side of the underlying asset. With respect to Islamic Financing, Malaysia is very much at the forefront in Asia, having by far the largest sukuk market. For the likes of hedge fund managers and other institutional investors looking for credit opportunities in Malaysia, the opportunity to buy derivatives contracts is an important development. Speaking at a Kuala Lumpur seminar earlier this month, Bank Islam Malaysia’s assistant general manager, Hizamuddin Jamalluddin, said that it was very critical that holders of sukuk have access to hedging solutions to counter the challenges in a rising interest rate environment. “Interest rates seem to have hit rock bottom,” said Jamalluddin. Shariah-compliant CDSs to complement cross-currency swaps and Islamic profit-rate swaps are also being “explored” by CIMB Islamic, the global Islamic banking arm of CIMB Group.
