MANAMA: The International Islamic Financial Market (IIFM) and the International Swaps and Derivatives Association, (ISDA) yesterday launched the ISDA/IIFM Tahawwut (Hedging) Master Agreement at a meeting in Bahrain.
The development is a breakthrough in Islamic finance and risk management, and marks the introduction of the first globally standardised documentation for privately negotiated Islamic hedging products.
The agreement is the first financial industry framework document that is applicable across all jurisdictions where Islamic finance is practised.
The launch of the agreement was officially announced at an event in Bahrain hosted by IIFM and ISDA under the patronage of Central bank of Bahrain Governor Rasheed Al Maraj.
"Given the growing nature of the Islamic finance industry, the institutions operating on Sharia principles can no longer afford to leave their positions un-hedged," said IIFM chairman and CBB executive director of banking supervision Khalid Hamad.
"Hence, some key hedging products are now becoming common across jurisdictions to mitigate risk.
"The ISDA/IIFM Tahawwut Master Agreement gives the industry access to a truly global framework document which is neutral in terms of treatment to both the transacting parties and at the same time strictly conforms to Sharia principles.
"IIFM is honoured to have achieved this milestone in collaboration with ISDA and I am confident that such joint efforts will continue in the future," he added.
"Demand for customised, privately negotiated hedging tools that conform to the principles of Islamic finance has increased in momentum," said ISDA chairman and managing director and head of fixed income for the EMEA region for Credit Suisse Eraj Shirvani.
The agreement provides the structure under which institutions can undertake Islamic hedging transactions such as profit-rate and currency swaps, which are estimated to represent most of today's Islamic hedging transactions.
It is designed to be used between two principal counterparties as a master agreement. Parties understand that no interest shall be payable or receivable and no settlement based on valuation or without tangible assets is allowed.
Moreover, the counterparties to the agreement make representations as to the fact that they enter into Sharia-compliant transactions only.
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