Islamic banks mull commodity platform to park surplus liquidity

KARACHI: Islamic banks are mulling to develop a Shariah-compliant commodity trading platform in consultation with the Pakistan Mercantile Exchange to utilise their excess liquidity that surpassed Rs400 billion, sources said on Saturday.

The sources said the platform is to deal in buying and selling of commodities in the local and international exchanges. It will be based on Murabaha-related transactions. It will use the short-term funds of Islamic banks.

Sources, privy to the developments, said there are various proposals under discussion regarding which commodities should be chosen to begin with. 

“Under a proposal, a bank may buy oil from marketing companies against cash payment and then sell it on deferred payment to a third party,” a well-placed source told The News.

“Not just that,” the source said, “some Islamic financial players are working out modalities to integrate the Murabaha commodity platform with international exchanges in Dubai, London and Malaysia.”     

“Of course, all such proposals are subject to the approval from Shariah board of the SBP (State Bank of Pakistan),” he added. The Islamic banking department at the SBP held a meeting with the representatives of the Islamic banking institutions on Thursday in an effort to find a solution to their liquidity management problem.

“Presently, the central bank’s Shariah board is reviewing the suggestions received from the stakeholders,” an official said, on condition of anonymity.           

Financial experts termed the commodity platform proposal as feasible. “This by far is the best option available for the banks,” a banker said. “It would be a breakthrough in Pakistan.” 

Some Shariah scholars have, however, reservations about the prospective nature of Murabaha contract.

“The decision for this product vests basically with the Shariah advisors first than with the government and or the SBP,” a senior banker said. “If Shariah advisors accept this then this will be the best thing for the local Islamic banking industry and it will also attract investment from local and international investors.”  

Bankers said Islamic countries like Malaysia are already using this platform, “we and our Shariah advisors shall also take more liberal view on it.”

Islamic banks face a shortage of Shariah-compliant short-term government securities, such as Ijara Sukuk to deal with their huge funds. Islamic lenders seem to adopt such mode of financing (commodity Murabaha) to invest extra funds in the absence of money market instruments.   

The SBP slashed statutory liquidity requirement for the Islamic banks to 14 percent from 19 percent in November last year to fix their liquidity problem. However, banks feel the relief is a short-lived.      

Deposits at Islamic banks are continuously growing but they have dearth of avenues for investment.

The deposits of the Islamic banks rose to Rs1.476 trillion in the third quarter of 2016 as against Rs1.271 trillion in the same quarter of 2015.

The market share of Islamic banking assets in overall banking industry increased to 11.8 percent in July-September 2016 from 11.2 percent a year earlier.

The Islamic banking industry posted a profit of Rs8.4 billion in July-September 2016 compared with Rs6.5 billion earned by the industry during the same quarter of 2015.