Nasdaq Dubai Islamic Trading Platform Plans Expansion

London: Nasdaq Dubai, which lists about $21 billion of sukuk, plans to expand an Islamic trading platform as the Gulf emirate takes another step in its drive to become capital of the global Sharia-compliant economy.

The Nasdaq Dubai Murabaha Platform, which comprises assets that Islamic financial institutions can use to back transactions for their customers, wants to increase the range of securities it offers, according to chief executive officer Hamed Ahmed Ali. About Dh25 billion ($6.8 billion) of deals have used the market since it started as a pilot project in September 2013, he said. Until now, the platform has listed sukuk and so-called Wakalah certificates — agreements where a bank acts as an agent and is paid fees and commissions in place of interest.

“In the future we’ll give you tens of options when it comes to securities,” Ali said in an interview in Dubai on November 27, without providing further details. “For us, the focus is on providing better, more flexible options for participants.”

Global Islamic financial assets are poised to almost double through 2018 to $3.4 trillion, according to Ernst & Young estimates. Dubai set out an ambition last year to lead the Sharia-compliant economy. Nasdaq Dubai created its platform to provide an asset base for Murabaha deals, in which a customer buys an asset from a financial institution at a markup and then sells it on, adhering to the religion’s ban on interest.

Alternative options
Emirates Islamic Bank was the first lender to join the Murabaha platform, which officially started in April with the intention of serving the region’s banks. Sharjah Islamic Bank joined in May and Islamic Finance Co. carried out its first transaction last month.

The platform “provides an alternative option to going to London to buy and sell commodities on the London Metal Exchange, which is the current practice,” Rizwan H Kanji, a Dubai-based partner at law firm King & Spalding, said by phone on November 20. Borrowers in the region benefit because the platform operates in the same time zone, and it provides fixed prices, while metals are potentially more volatile, he said.

Dubai, one of seven sheikhdoms that make up the United Arab Emirates, said in 2013 it wanted to become a global center for Islamic finance, e-commerce, fashion, arts, education, tourism, standards and certification, as well as an export hub of Halal food within three years. Nasdaq Dubai created its platform after it identified a shortage of available options in the Murabaha segment, CEO Ali said.

“Historically Murabaha transactions have been done using commodity underlying assets, a set up not all Sharia scholars are comfortable with,” Abdulla Mohammad Al Awar, chief executive officer of the Dubai Islamic Economy Development Centre, said by e-mail on November 20. Nasdaq Dubai is “offering financial institutions a solution that was not available in the region before,” he said.

Shrinking market
Growth of the platform may face hurdles in the near term. Murabaha volumes have fallen over the last five to six years, according to Steven Spencer, founder of Ambro, a metals trading company which provides commodity-based Sharia-compliant solutions. 
“With quantitative easing and zero interest rates, there has been less need to do Murabaha,” he said by phone from London on Nov. 30. “So the Murabaha market has fallen by about 80 per cent over the last five years and is tiny now.”

Still, Nasdaq Dubai is attracting larger deals. Drake & Scull International PJSC last month privately placed a $120 million five-year sukuk based on the platform. “It’s something that will continue to happen,” Nasdaq Dubai’s Ali said. “We are keen for Dubai to become an innovation center for Islamic finance.” 

Originally published on www.timesofoman.com