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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.
The Tradeflow platform developed by the Dubai Multi Commodities Centre (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 said.
“We realised that there was a shortage of sharia-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 occurring. That assurance is necessary for Islamic banks to enter into murabaha contracts with each other to place their surplus funds. Reuters