1. Shari’ah-Compliant Collateral and Margin Maintenance
12th Meeting of the Organisation of Islamic Cooperation Member States’ Stock Exchanges Forum Tuesday, 11th September 2018, Conrad Istanbul Bosphorus Hotel Ijlal Ahmed Alvi Chief Executive, IIFM

2. Some Tools For Liquidity Management
Murabahah
Credit Risk>>>>>>>>>>>>>>>>>>>
Generally Short Term
Salam
Credit Risk>>>>>>>>>>>>>>>>>>>>
Generally Short Term
Wakalah
Investment Risk / Credit Risk >>>>> Generally Short Term
Qard Hasn
Credit Risk >>>>>
Generally Short Term
Islamic Securities
Credit Risk / Market Risk>>>>>>>>
Generally Long Term
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

3. Improving Credit Risk Management
COLLATERALISATION
Proper Documentation
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

4. Ensuring adequate liquidity
Tenth Harvard University Forum on Islamic Finance Harvard Law School - March 24-25, 2012
Mahmoud Mohieldin, Managing Director, World Bank Group
Highlighted 6 challenges facing Islamic finance as the industry evolves into its next phase:
Improving regulatory oversight
Strengthening insolvency frameworks
Rebalancing tax treatment
Promoting standardization
Ensuring adequate liquidity
Establishing sound risk-management practices
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

5. Apart from Credit Risk Management
A Tool
that
Flows
Liquidity
Into the
Securities
Market
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

6. Collateralisation How does it Work?
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

7. Murabahah Collateralised by Sukuk or Equity
Requires Liquidity or
Financing
Investor or
Financier
Sukuk or Equities
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

8. IIFM Standard MCM Agreement
Objective of the MCM Agreement
Master agreement or framework agreement which sets out the terms upon which the parties can subsequently enter into Collateralized Murabahah Transaction that allows a Buyer an opportunity to raise liquidity by creating security of Shari’ah compliant assets
Entering into Murabahah Transactions
Schedule set out in the MCMA enables individual Murabahah transaction to be entered between the Buyer and Seller from time to time and initial Collateral is delivered to the Seller through the grant of security
Margin Maintenance
Margin Maintenance mechanism is outlined whereby the initial collateral is mark to market to maintain an agreed level of exposure. Any Shortfall or excess can be returned subject to an agreed threshold value
Collateral Substitution
Posted Collateral are pledged in a segregated and identifiable account. However, the initial as well as subsequent collateral can be called backed and replaced with any security acceptable to the Seller
Shari’ah Approval
The IIFM MCMA is approved by well respected Scholars represented on IIFM Shari’ah Advisory Board
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

9. IIFM Master Collateralized Murabahah Agreement (MCMA) & Guidance Notes
Few Points for Discussion
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

10. IIFM MCM Agreement Operational Guidance Notes
Is it permissible to use Bonds as Collateral
MCMA is a Shari’ah Complaint Liquidity Management Agreement and envisaged to use SUKUK or other Shari’ah compliant securities as collateral. Bonds and Non Shari’ah compliant securities are impermissible
Can the Seller make use the Posted Collateral
The collateral are delivered to the seller by granting of security of the assets and they are to be held in a segregated account.
The Seller cannot make use of the Posted Collateral.
The Collateral may be disposed off in an event of default
What happens to the Profit received from Pledged Sukuk
The Pledge Sukuk does not involve transfer of ownership. Any profits received in the segregated or identifiable account is for the benefit of the Collateral provider and needs to be returned back to the pledgor
Does the MCMA allow FI to do two way financing
The MCMA is intended to be applied between parties in capacities in which they entered into on execution of the agreement. Separate MCMA has to be executed to allow parties roles to be Reversed
Governing Law
Governing Law is at the option of the Parties. The MCMA has been based on the assumption that the governing law will be English Law.
Each Party represents that it has satisfied itself as to Shari’ah compliance of Collateralized Murabahah Transaction entered under MCMA
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

11. Collateralisation The Key is to Ensure Margin Maintenance
A (1) Assuming the Collateral Value Decreases Below the Threshold Variance
Bank to provide more (same or other) acceptable Sukuk
Provide other acceptable Collateral as previously agreed
Or Provide acceptable Letter of Credit
To bring the collateral level back up to 110%
If none of the above agreed instrument is delivered then the Party A will be in Default
Party B will Return part of the Sukuk in order to bring it back down to 110% of the Finance Amount
Or Party A may consider not to request this extra amount from Party B and may wish to leave extra buffer and save on operational cost
A (2) Assuming the Collateral Value Increases Above the Threshold Variance
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

12. TRI – PARTY
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

13. What Does Tri–Party Offer ?
Credit Enhancement
Tri- Party plays and important role by providing independent operational
facility while holding underlying collateral
Operation Out Sourcing
Allows entities to participate in Collateralised Financing even when
their operation and IT capabilities cannot support due to limitation
Credit
Management
Its function is to ensure the Collateral Value are maintained by daily
mark to market the Collateral, Call for additional Margin if required,
ensure the Collateral is of the type and quality as per the agreement
and to process Corporate actions
Expands Client Base
Central Banks, Pension Funds, Asset Managers, Leasing Co and Corporate entities can provide extra cash liquidity to the market. Knowing the exposures are monitored by an independent entity
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

14. Murabahah Collateralised by Sukuk
TRI PARTY
Margin Calls
Islamic Securities
Margin Calls
Financier
Party
Requires Liquidity
Custodian
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

15. Tri Party – Collateral Optimisation
Now
Relax
And
Enjoy
The
Fruits
Knowing your Exposure is Monitored independently by a an engine that optimizes
the Collateral pool while ensuring Credit exposure is monitored, reported and actioned
12th Meeting of the OIC Member States' Stock Exchanges Forum, 11th September 2018, Istanbul

16. Shukran Wassalamu ‘Alaikum
International Islamic Financial Market (IIFM)
Office 72, 7th Floor, Zamil Tower , P.O. Box: 11454, Manama, Kingdom of Bahrain
Tel: , Fax: , Website:
Disclaimer: The information herein has been obtained from sources believed to be reliable but cannot be guaranteed. The views or opinions expressed are subjected to change at any time. Neither the information nor any opinion expressed can be construed as a solicitation for the purchase or sale of any securities. International Islamic Financial Market disclaims liability in this respect.