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IIFM and BAFT Launch Global Master Participation Agreements to Support Islamic Trade Finance

Manama – The Bahrain-based International Islamic Financial Market (IIFM), the leading standard setting body developing Sharia’a-compliant financial documentation and product confirmation standards, and the Bankers Association for Finance & Trade (BAFT), the leading global financial services association for international transaction banking, launched in January 2019 a joint initiative of creating global master participation agreements to support the development of Islamic trade finance business.

The IIFM-BAFT Master Participation Agreements (IIFM-BAFT MPAs) consist of two separate standardized frameworks of documentation to cater for Sharia’a-compliant Unfunded and Funded participation arrangements for Trade Finance transactions, including a separate Sharia‘a pronouncement for each master agreement.

“Trade finance plays an important role in the global financial system and for Islamic finance it presents a huge opportunity which the market participants must avail. The IIFM-BAFT Master Participation Agreements, like previous IIFM Standards, will provide greater transparency, cost and time efficiency, legal certainty as well as Sharia’a harmonization which in turn will contribute in creating more active Islamic Trade Finance business,” said Khalid Hamad, Chairman of IIFM.

According to Tod Burwell, President and CEO of BAFT, Islamic trade has become an important transaction stream in many markets.  “By standardizing the framework for Sharia’a-compliant participation arrangements relating to trade, we hope that transaction execution will become easier and trade will continue to facilitate economic growth in these markets.” Indeed, according to the latest figures from the Islamic Development Bank (IsDB), the total trade of its 56-member countries in 2016 amounted to US$3.095 trillion

Ijlal Ahmed Alvi, CEO of IIFM, similarly stressed that the IIFM-BAFT MPAs are developed based on a comprehensive industry consultation process under the guidance of the IIFM Sharia’a Board and provide the financial market participants with a robust and ready to use documentation.  “This is yet another major accomplishment for the Islamic finance industry and going forward IIFM will aim to tackle other pressing issues relating to trade finance including Islamic trade finance products as part of the MPA’s development.”

Mr Alvi went on to explain that “Collaboration with other Islamic and international standard-setting organizations is necessary as with combined efforts we can achieve greater unification and legal certainty to bring about more innovation, capacity building and market development.

In an example of that collaboration, DDCAP has engaged, at IIFM’s request, in the development of the new trade finance standards and Lawrence Oliver, deputy CEO of DDCAP, in an interview with Islamic Finance News explained the view of the company. “It has long been accepted that trade finance is prospectively one of the Islamic financial market’s most significant asset classes. However, the challenge has been to build upon existing transactional structures and templates to create a broader range of solutions that are both Sharia’a compliant and also relevant, where appropriate, to the established practices and requirements of the global trade finance market. Through the IIFM and BAFT’s extensive industry consultation, those issues have now been brought into the open market for debate, so that long outstanding concerns could be addressed and resolved. The outcome is a documented standard that is Sharia’a compliant and also consistent with international market best practice. This combined validation will assist in building confidence and attracting new investors. Equally positively, this enhancement of the suite of Islamic trade finance instruments will enable institutions the opportunity to invest in a portfolio with improved liquidity and the ability to manage risk positions more efficiently.”

 

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