BGC Partners to launch Islamic murabaha contracts in Dubai
US broker BGC Partners and UAE government-run free zone the Dubai Multi Commodity Centre have done a deal to promote Islamic ‘Murabaha’ products, as part of a drive to turn Dubai into an Islamic finance hub.
The DMCC has a trade platform called DMCC Tradeflow, which operates in the Jumeirah Lakes Towers Free Zone. A ‘free zone’ is a port where goods intended for resale can be received and stored without paying any duties. Under the agreement, commodity Murabaha contracts can be traded on the DMCC Tradeflow platform.
Murabaha is a type of contract in which an intermediary buys an asset and then agrees a sale price with a buyer, as well as the commission the seller will receive on the deal. Murabaha is based on Islamic sharia law – so no interest charges apply. The idea is that the deal is transparent for all involved. In addition, the intermediary is not allowed to charge any late penalties if the buyer is late with a payment.
The DMCC signed the deal because it wants to promote Dubai as a global centre of Islamic finance. According to figures provided by Kuwait Finance House Group, the Islamic finance industry will grow to $2.1 trillion in assets by the end of 2014. The trend is being driven by rising financial inclusion in Muslim countries as well as general demand for transparent, ethics-based financial products worldwide.
“While trading of this product has been in existence for some time, our joint offering brings a modernisation to the process, offering speed, convenience and innovation to the execution of this popular product,” said Charlie Sleightholme, head of commodity Murabaha business at BGC in Dubai. “We look forward to working with the DMCC to offer our clients an unparalleled service that places Dubai even more firmly on the map as a world hub for Islamic finance.”
The principles of Islamic banking forbid the charging of interest, as well as dealing in products related to vices such as alcohol, gambling, weapons sales and tobacco. In addition, trading activity should be based on a real underlying asset to avoid speculation and communal initiatives such as profit sharing are encouraged.