Iifm Murabaha Agreement

On March 1, 2010, the International Swaps and Derivatives Association, Inc. (ISDA) and the International Islamic Financial Market (IIFM) announced the release of their highly anticipated ISDA/IIFM Tahawwut Master Agreement (the agreement). The agreement aims to regulate legal and credit relations between two parties that forge a bilateral trade relationship involving Shari`a-compliant hedging operations on the basis of murabaha transactions. TMA has become the main contract of choice and its use is increasing after the publication of standard ISDA/IIFM product models on the Profit Swap, Islamic Cross Currency Swap and Froward Islamic Currencies. Currently, the TMA has been implemented in Bahrain and Saudi Arabia due to regulatory support and institutional preference through a strong and well-established documentary architecture. To better understand the reasons for this feature, it is necessary to put it in context. Imagine a typical vanilla-profit swap with Murabaha contracts. The fixed deposit of the swap is a transaction of Murabaha concluded, under which the Jeser sells variable rate assets to the fixed taxpayer for deferred payments, the deferred payment being payable in tranches on each payment day. On the other hand, the shari`a at the variable level of an interest rate swap, since the variable element of the rate is known only at the beginning of each calculation period, allows only a murabaha transaction completed for this specified calculation period.

Therefore, the parties agree to conduct a number of separate Murabaha transactions, one for each calculation period. These separate Murabaha operations, which will be completed in the future, are future design operations. This concept is used to calculate the amount payable following an early termination, which is explained below. The model agreement provides institutions with strong operational, legal and secure security for transactions, without guaranteeing the overstalment of capital and profits. The main features of this documentation are Wakil`s discretion in the investment of funds, the use of the general cash pool (segregated and unseparated asset pool), expected profits, early termination, asset replacement, accounting audit, etc. The ISDA/IIFM Tahawwut Master Agreement is a global master`s agreement for transactions in Islamic derivatives. The document contains the first standard contractual document for cross-border transactions in Shariah-compliant derivatives. Like the ISDA Masteragrement 2002, on which it is based, the ISDA/IIFM Tahawwut Master Agreement is a multi-product framework agreement. The document was drafted with the aim of documenting the exchange of Islamic currencies and profits based on the murabaha of raw materials.