“Steps in Creating Global Islamic Money Markets:
Why is it Important to Mediterranean Countries”

VII MEDITERRANEAN WEEK O...
Vision – Global Islamic Money Markets
Efficient Global Islamic money markets are must for a welloiled banking and financia...
Gap Analysis
Conventional markets offer a scope of products that do not
form part of Islamic finance ecology
• Collaterali...
The Way Forward

Product Innovation
• To address these concerns,
foremost focus should be to
develop new products that
may...
Islamic Capital Market

Substantial growth in number of financial centres and new Islamic financial
institutions specially...
Why……..

 Additional source of funding
 Take advantage of price difference
 Increasing the reach and distribution o new...
Thank You

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Steps in Creating Global Islamic Money Markets: Why is it Important to Mediterranean Countries

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Conference given during the first Arabic Finances Summit in Barcelona, part of the Mediterranean Week of Economic Leaders that took place on November 21st 2013. Issam Al Tawari Chairman & Managing Director Rasameel Structured Finance in Kuwait, is the author.

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Steps in Creating Global Islamic Money Markets: Why is it Important to Mediterranean Countries

  1. 1. “Steps in Creating Global Islamic Money Markets: Why is it Important to Mediterranean Countries” VII MEDITERRANEAN WEEK OF ECONOMIC LEADERS: First Islamic Finance Summit November 21st , 2013 Issam Al Tawari Chairman & Managing Director Rasameel Structured Finance , Kuwait
  2. 2. Vision – Global Islamic Money Markets Efficient Global Islamic money markets are must for a welloiled banking and financial services machinery Presence of a robust market system • Ensures efficient utilization of shortterm savings • Provides market for short-term financing and securities • Allows mobilization of large sum of funds between surplus and deficit participants through monetary policies • Provides large number of options in terms of instruments to invest into • Allows participants to manage risks more efficiently and protect investors from market volatility • Mitigates the volatility of working capital needs • Establish debt market pricing curve • Acts as a benchmark for pricing derivatives • Boost investors’ confidence • Helps in making banking system more robust through efficient liquidity management mechanisms • Money market cross border integration reduces transaction costs and produces environment with competitive yields • Matches short-term assets and liabilities (Islamic financial institutions, due to their inherent nature, face huge asset liability mismatch risk) • Allows investors to invest into different asset classes through large number of instruments with varieties of terms • Central banks may play a major role in implementing monetary policy through a well developed and strongly integrated money market. • Markets allow central banks to do open market operations, government issuances, manage liquidity and set pricing targets 2
  3. 3. Gap Analysis Conventional markets offer a scope of products that do not form part of Islamic finance ecology • Collateralized short-term Islamic financing market significantly lags behind uncollateralized short-term • Collateralized Instruments financing market Secured financing is more prevalent in most developed conventional money markets. Key instruments in these markets are:  Repo Market  Asset backed securities market (ABCP) FX swap market Futures (forward rate agreements)  Shariah compliance  Required effectiveness   • Collateralized instruments present better chance for Islamic money markets to achieve • Most developed markets offer a broad array of both secured and unsecured financial instruments • Some of the key unsecured instruments that are yet to be inducted into Islamic money markets are: Non-collateralized Instruments      Commercial Papers Certificate of Deposits (CDs) Bankers’ Acceptance (BA) Municipal & Government Loans Treasury Bills 3
  4. 4. The Way Forward Product Innovation • To address these concerns, foremost focus should be to develop new products that may include securitization products like Asset backed securities, Repos, Forward contracts, FX swap, etc • In order to make markets more versatile, both collateralized and unsecured financing instruments need to be developed, • The objective should be to introduce more products that are universally accepted under Shariah law and thus increasing the scope of money market instruments Regulatory Framework Standardisation • Standardization is a key element in the progress of Islamic finance • Regulators play a pivotal role in  • It ensures universal acceptance and usage of a product • Bodies like IIFM & ISDA have been playing a vital role here facilitating unification, Shariah harmonization and legal reforms in Islamic financial markets and products • Lowers transaction costs  Encouraging standardisation of structures and documentation Enhancing the system by ensuring compliance by the participants. Market Infrastructure • Impetus should also be on building the necessary infrastructure to ensure smooth market operations and creation of secondary markets.. • This facilitates efficient capital and trade flows • Regulators may also help in creating awareness among market players to encourage participation • They may also help in human talent management by conducting courses in Shariah principles, legal and management aspects 4
  5. 5. Islamic Capital Market Substantial growth in number of financial centres and new Islamic financial institutions specially from the Arabian Gulf (Bahrain & Dubai) area , SE Asia (Malaysia & Singapore) and London are growing in importance. WHY? 1. Increasing market penetration and a larger middle income group savings. 2. Reflecting on increasing market acceptance to the practice and increasing sophistication of Islamic banking with new innovations and products.
  6. 6. Why……..  Additional source of funding  Take advantage of price difference  Increasing the reach and distribution o new investors  Establish issuers presence in Islamic DCM Strictly Confidential 6
  7. 7. Thank You 7

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