{Kantakji Group}. Add '10461' Islamic interbank rate launched Could be used to price range of Islamic instruments - 1ST PART

New Update from IslamicFinanceArabia.com Islamic interbank rate launched Could be used to price range of Islamic instruments - 1ST PART Giving a boost to the booming Islamic finance, a consortium of banks and financial institutions launched Tuesday, November 22, the industry's first international Islamic interbank rate. A group of 16 banks resolved a quandary that has dogged the $1 trillion Islamic financing market for nearly three decades: how to represent rates on interbank funding when Islamic principles prohibit firms from charging interest. The banks—working with industry associations and data provider Thomson Reuters—created a reference rate called the Islamic Interbank Benchmark Rate, or IIBR, which was put into use for the first time Tuesday. The banks say the solution, which complies with Islamic moral codes, known as Shariah, lies in considering money flowing between banks as investments that depend on the performance of underlying assets, rather than as interest-bearing loans. Since the establishment of the first Islamic commercial bank in 1975, the Islamic finance industry has been searching for an indigenous benchmark that can be applicable to transactions compliant with Islamic law (Shariah compliant). As an ethical financial system, Islamic finance prohibits interest and shuns all interest-related transactions and instruments as these are contradictory to the core principles of Islam. Despite this prohibition, in the absence of a reliable Islamic interbank benchmark, Islamic banks and financial institutions have continued to utilise conventional interest based benchmarks to calculate their cost of funding with no reference to either their assets' risk profile or the regional particularities of Islamic banks. The Islamic Interbank Benchmark Rate (IIBR) serves to address some of these concerns by developing a rate that is contributed by and is indigenous to a global panel of Islamic banks and Islamic Banking windows with fully segregated funds.  Scholars and bankers involved in the project say it is an industry milestone akin to the first globally issued Islamic corporate bond in 2001, or the first Islamic sovereign bond in 2002. They say the rate brings transparency to the Islamic financing process and could encourage broader use of Islamic banks. "The establishment of the IIBR marks an important milestone in the maturation of Islamic money markets by providing an international reference rate for interbank transactions," said Nasser Saidi, chairman of the Islamic Benchmark Committee and chief economist at the Dubai International Financial Centre, in a statement.  The Islamic Interbank Benchmark Rate ('IIBR') is calculated by Thomson Reuters based on a time tested methodology agreed upon in consultation with the Islamic Benchmark Committee and approved by the Shariah Committee.      The IIBR is defined as the profit rate that an individual Contributor Panel bank would perceive to be reasonable for Shariah compliant funding  were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 am Makkah local time (GMT + 3). The value dates for settlement are T+0 for Overnight funds and T+2 for all other tenors.   Islamic banks aren't allowed to earn or pay interest, yet have been using an international interest-rate benchmark—the London interbank offered rate, or Libor—since 1986. While Libor isn't compliant with Shariah, religious leaders permitted its use because there was no alternative benchmark based on socially ethical investing. Rather than measuring interest on loans as Libor does, IIBR uses expected profits from short-term money and a forecasted returns on the assets of the bank receiving funds. Both are considered investments rather than loans, and therefore interest-free. Khairul Nizam, deputy secretary general of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), which sets standards for the industry, said IIBR would for now remain a guideline that banks could voluntarily choose to adopt. "We don't have the regulatory authority to compel banks to use IIBR but as the contributing banks are among the top Islamic institutions, we are hopeful that as they

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