The Central Bank of Bahrain (CBB) is set to launch a key Islamic financial instrument aimed at providing a much-needed liquidity management tool to Islamic financial institutions.

The Islamic Sukuk Liquidity Instrument (Isli) has been jointly developed by the CBB and the Bahrain-based Liquidity Management Centre (LMC), an organisation which provides asset sourcing, structuring and market making capabilities.

ISLI has been designed to enable financial institutions, both conventional and Islamic, to access short term liquidity against Government of Bahrain Islamic leasing (Ijara) bonds (sukuk), issued by the CBB.

The new initiative reflects CBB’s continuing commitment and contribution to the Islamic finance industry and will further enhance Bahrain’s role as a world leader in the sukuk market.

“The development of the uniquely-structured ISLI represents a major breakthrough for the Islamic finance industry worldwide and will significantly enhance the sukuk market,” said Dr Abdul Rahman Saif, executive director, banking operations, at the CBB.

The availability of instruments such as Isli will help create a deeper and more liquid sukuk market, which requires a variety of short and long term instruments to enhance Islamic banks’ ability to efficiently manage their liquidity. It will also stimulate and promote a more active Islamic financial market.

The tripartite structure developed by the CBB and LMC will enable financial institutions holding BD-denominated CBB Ijara sukuk (short, medium or long term) to engage in transactions aimed at accessing short term liquidity.

“Conventional money markets have a wide range of instruments which allow banks to invest surplus funds or borrow funds in the short term. ISLI will provide similar flexibility to Islamic financial institutions as well as conventional institutions subscribing to CBB sukuk,” said Dr Saif.

The new instrument will complement the already existing and hugely popular sukuk offered by the CBB.

In 2001, the CBB became the first sovereign in the world to develop and issue sukuk. Since then, the CBB has an established calendar of Islamic debt paper, which comprises short term as well as medium to long term sukuk.

A BD5 million issue of Sukuk Al-Ijara, of 6-month tenor, and a BD6 million issue of Sukuk Al-Salam, of three-month tenor, are each offered once a month.

For the medium and long term tenors, the CBB has offered a total of 14 issues of Ijara sukuk, with a total value of $2.05 billion, of which US$1.27 billion is currently outstanding. The most recent one, a five-year US$350 million international issue now listed on the London Stock Exchange, was made in March 2008.

“We expect to bring the ISLI to market later this month,” said Dr Saif.

The contract has been endorsed by the Shari’a Boards of the CBB and LMC. Members of the CBB Shari’a Board are Shaikh Nizam Yaquby, Shaikh Dr Abdul Sattar Abu Ghuddah, Shaikh Mohsin Al Asfoor, Shaikh Abdulla Al Manea and Justice Taqi Usmani, while LMC’s Shari’a Board comprises Shaikh Dr Hussain Hamid, Shaikh Dr Ajeel Al Nashmi, Shaikh Adnan Al Qattan and Dr Abu Ghuddah.

“In the quest for developing the Islamic financial market, we have reviewed this instrument and found it to add significant value to the sukuk market,” said a CBB Shari’a Board statement.

Ahmed Abbas, LMC chief executive officer, thanked the CBB for its support in structuring Isli, which was a groundbreaking development for the Islamic finance industry.

“The CBB has committed considerable resources, including its real time national payment system (RTGS) and Securities Settlement System (SSS) to make ISLI an operationally efficient product,” said Abbas.-TradeArabia News Service