Gulf’s Islamic banks pressed to diversify money market deals

Regulators, scholars and simple economics are pressing Islamic banks in the Gulf to diversify their money market transactions, a trend which could spur growth of the region’s financial markets.

Islamic money market assets have expanded rapidly in the last few years along with the rise of sharia-compliant banking.

In the UAE, for instance, Islamic certificates of deposit issued by the central bank and held by commercial banks have more than tripled in the past two years, to Dh15.1 billion ($4.1 billion) last December from Dh4.6 billion in 2010, central bank data shows.

The main tool that Gulf banks use to manage such short-term liquidity is commodity murabaha, a common cost-plus-profit arrangement in Islamic finance. Under the arrangement, a bank agrees to purchase merchandise for another bank, which promises to buy it at an agreed mark-up.

Read more: http://www.reuters.com/article/2013/03/28/islamic-finance-banks-idUSL5N0CJ32T20130328