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above. Although addressing a relatively small subset of
their customer base, to varying degrees of automation,
the single bank platforms offered by global banks all
do this. Structures offered are for the most part
customer driven, encompassing combinations of
single Wa’ad, double Wa’ad and commodity
Murabaha.
In the event of Murabaha based transactions, in-line
electronic integration with an approved commodities
broker(s) would automate the process of discovery,
execution and
confirmation enabling the
sell-side to leverage
immediate operational
efficiencies, dramatically
reducing CPT (average
Cost Per Trade).
To enjoy widespread buyside
support, compliance
models should be signed
off by a dedicated
Shari’ah compliance
board, which would
consider and issue fatwas
(religious opinion
typically issued by an
eminent Islamic scholar
or compliance board
comprised of such
scholars) on a bystructure
basis.
Addressing the needs of
Islamic traders and
investors
• Streamline buy-side
workflow:
Asked to name the single
biggest benefit of eFX
platforms, many Islamic
investors and traders (the
tiny minority who use them) fail to mention ease of
price discovery, convenience or even better liquidity,
instead praising the advent of progress toward
streamlined workflow. Given the nature of Islamic
finance, the end-to-end processing of an outright or
swap is a resource-intensive business. Together with
an acceleration of standards and regulatory
convergence, this has become an enduring barrier to
widespread buy-side adoption of compliant FX and a
stubborn impediment to the sell-side scaling the
business to anything like meaningful volumes.
38 | january 2010 e-FOREX
• Advance standards and regulatory convergence:
A multi-bank eCommerce platform as an industry
solution for the global Islamic investment and trading
community is the ideal vehicle to level the playing
field with standards based compliance models and
documentation.
• Spectacularly reduce ticket processing costs:
With such cumbersome trade lifecycle events,
processes and workflow, the sell side arguably has the
greatest incentive; fully costed, the CPT for banks
currently providing
compliant FX in the Gulf
ranges from $150 to an
eyebrow raising $300+.
Progressively higher levels
of integration and STP, all
of which originate from
electronic execution, will
substantially eliminate the
processing bottlenecks
currently placing an
“artificial” handbrake on
volumes.
The more generic benefits
of eCommerce
deployment such as
reduced market and
operational risk of course
also apply. With bilateral
credit the moving feast
that it is these days, so too
the relevancy of reduced
credit risk/credit
enhancement, with
integrated messaging
handling prime broker
functions.
Conclusion
The unique characteristics
of Islamic finance are rooted in centuries old values.
Operational challenges posed by these characteristics
lend themselves perhaps even more than conventional
FX, to electronic automation.
Up to the minute, twenty first century technology,
sensitively coupled with Islamic jurisprudence will
accelerate the emergence of the Shari’ah compliant
trading sector and deliver a confluence of undeniable
benefit to all market participants.