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.

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. 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
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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
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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
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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. 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
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7. Thank You
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