The National Bank of Abu Dhabi (NBAD) and Abu Dhabi Islamic Bank (ADIB) executed the GCC’s first ever Islamic equivalent of the conventional Repo product, a collateralized Murabaha transaction, opening the gateway to an alternative method of liquidity management in the Islamic banking sector.
Together NBAD and ADIB concluded a one week maturity deal valued at US$20 million against Malaysian and Abu Dhabi Government-Related Entity Sukuk.
NBAD and ADIB jointly embarked on this initiative to formalise the Master Collateralised Murabaha Agreement (MCMA), thus enabling Islamic banks to utilise their holdings of sukuk.
The MCMA offers a Sharia-compliant alternative to the repurchase arrangement, which conventional banks and financial institutions (FI’s) use to lend and borrow at extremely low risk.
"We believe this is a major milestone for the Islamic Banking industry. It will provide Sharia-compliant banks and FIs with an efficient and cost effective tool to manage short and medium-term liquidity," said Mahmood Al Aradi, the Senior General Manager of NBAD’s Financial Markets Division. "This type of transaction will set the stage for future collateralised murabaha trading in the sukuk market, which will greatly boost this segment and the secondary market." Bashar Jallad, Head of Treasury at ADIB, said: "This transaction is further proof of ADIB’s commitment toward innovative and meaningful Islamic solutions in the financial markets. The industry wide benefits of such a product enhance the scope and adaptability of Islamic Banking to a broader audience, maximising the number of participants in the Sukuk market." Mark Pritchard, Vice President and the Head of Islamic Institutional Coverage at NBAD’s Financial Markets Division, said: "With global issuance of sukuk this year to be around US$25 billion to $30 billion, the MCMA will be of significant benefit to the Islamic financial market participants who, up to now, haven’t been able to fully maximise their holdings of sukuk whilst still maintaining ownership." Mr. Pritchard added: "NBAD and ADIB have worked closely to execute this transaction and the legal departments of both banks and the Sharia Board of ADIB deserve considerable praise for their hard work and the successful outcome of the first ever collateralised murabaha transaction today."