NEW DOCUMENTATION FOR SHARIAH COMPLIANT DERIVATES IN THE GCC

The International Swaps and Derivatives Association (ISDA) and the International Islamic Financial Market (IIFM) signed a Memorandum of Understanding as a basis for developing a master agreement for documenting privately negotiated Shariah compliant derivatives transactions

ISDA and IIFM aim for the agreement to be accepted by Shariah advisors and to become a standard document used for Shariah compliant privately negotiated derivatives in Gulf Cooperative Council member states and beyond. As part of this understanding, ISDA and IIFM have formed a joint working group open to members of both organizations, which will meet every four to six weeks. IIFM's Shariah Supervisory Committee will be charged with evaluating the Shariah compliance of the master agreement.


Unlike their conventional counterparts, Islamic financial institutions (IFIs) have at their disposal a limited range of 'allowed' investment instruments, particularly hedging instruments, a key use of derivatives. This constraint has hindered the development of an efficient and active Islamic financial market. The limited risk management options available to IFIs makes them less competitive and, most importantly, affects their profitability.