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UAE: Addressing the
dearth of Shariah compliant liquidity management tools, the Central Bank
of the UAE (CBUAE) has decided to widen the pool of eligible collateral
for its Collateralized Murabahah Facility (CMF) beyond central bank
Islamic certificate of deposits to include other Shariah compliant
securities. According to a statement by the central bank, this extension
will be in effect the 1st April and will allow domestic
Islamic banks to secure central bank funds on an overnight basis using
eligible securities as collateral via the Triparty Collateral Management
Agreement signed with either Clearstream Banking or Euroclear Bank.
“The extension of the spectrum of eligible collateral under CMF will
enable Islamic banks to access central bank liquidity against collateral
as in the case of conventional banks which enjoy such access under the
Interim Marginal Lending Facility (IMLF),” explained the CBUAE. The IMLF
was launched last April to further strengthen the UAE banking system
through the provision of effective liquidity management solutions. At
that point of launch, the CBUAE announced that a Shariah compliant
version of the IMLF would be made available in the “coming weeks”.
Designed to provide liquidity to Islamic banks, the CMF was introduced in
June 2011 but only accepted Islamic certificate of deposits from the
central bank as collateral. Expanding the scope of eligible securities is
therefore a welcomed move from the industry, as this will better prepare
Islamic financial institutions in the face of market distress.
Categorized into five classes, eligible collateral for the CMF under the
new regime includes investment grade securities covering straight Sukuk,
covered Sukuk, Islamic treasury bills, Shariah compliant short-term and
medium-term notes as well as Islamic commercial papers. Below investment
grade Sukuk (‘P-3/A-3/F-3’) are also accepted; however, the papers must
be issued, originated and/or explicitly guaranteed by UAE local
governments and their respective government-related
entities/non-commercial public sector enterprises, domestic corporate
entities (conditional), or UAE banks as per central bank guidelines. At
the discretion of the CBUAE, securities issued directly by unrated UAE
local governments could also be considered.
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