DMCC set to launch Islamic commodity platform

DUBAI — Dubai’s government-owned commodities centre is launching a Shariah-compliant commodity trading platform which Islamic banks in the Gulf could use to manage their short-term fund flows.

By (Reuters)

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Published: Thu 21 Mar 2013, 10:28 PM

Last updated: Sat 4 Apr 2015, 9:43 AM

The tradeflow platform developed by the Dubai Multi Commodities Centre, or DMCC, allows trading of warehouse receipts, which represent ownership of commodities stored at warehouses.

Islamic banks cannot use conventional interbank money markets because of Islam’s ban on interest, so they have struggled with a shortage of instruments to manage liquidity.

The DMCC hopes its platform can be part of the solution to this problem, since warehouse receipts are based on actual trading of physical assets, an important principle in Islamic finance.

“What we have built is a completely different alternative to what is out there. Assets are really owned, really transferred — scholars can check these and all contracts are standardised,” Tradeflow director Paul Boots told Reuters.

“We realised that there was a shortage of Shariah-compliant money market instruments, which means Islamic banks end up with large concentrations of cash.”

The DMCC has operated a conventional trading platform for commodity receipts for years; the Islamic platform now being launched tracks the ownership of commodities in a way which gives assurance that a “true sale” of commodities is occuring.

That assurance is necessary for Islamic banks to enter into murabaha contracts with each other to place their surplus funds. “Banks still offload their master murabaha agreement as per their conditions, but all the sales and purchases are done in a very standardised way to ensure they are real sales purchases,” Boots said.

The Islamic trading platform, developed with Shariah advisory firm Dar Al Shariah, which is headed by prominent scholar Hussein Hassan, also involves the DMCC certifying that storage facilities for the commodities meet Islamic principles.

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