Since the start of the COVID-19 pandemic in early 2020, the world is going through unprecedented times which have disrupted economic activity globally and put the financial system under stress.
There has been a major shift in business operations for most organizations, including infrastructure development institutions like the International Islamic Financial Market (IIFM) which swiftly adjusted its workflow and continued with its various standardization and industry development initiatives.
Review of 2020
The following is a brief overview of some major IIFM activities during 2020.
In October, the IIFM published the Sukuk Al Ijarah Standard documentation. The IIFM standard set of ‘Template Sukuk Al Ijarah Documents’ comprise the following:
• Template Prospectus
• Sale and Purchase Agreement
• Ijarah (Lease) Agreement
• Service Agency Agreement
• Purchase Undertaking
• Sale and Substitution Undertaking, and
• Declaration of Trust.
The templates are ‘asset-based’ documents which are to be used for senior unsecured Sukuk Ijarah issuance. The IIFM is considering the creation of ‘asset-backed’ Sukuk Ijarah documentation as a future project. The IIFM is also progressing with the development of Sukuk Mudarabah Tier 1 standard documentation and expects to publish the standard documents by early 2021.
Global financial reform
To keep Islamic finance abreast of global financial market developments such as the regulatory-driven global benchmark rate reforms to discontinue the use of the Inter-Bank Offered Rate (IBOR) and replace it with Risk-Free Rates (RFR) by December 2021, the IIFM has been organizing sessions at its events over the last two years to raise awareness on this important development. This transition from IBOR to RFR will also have implications for Islamic transactions and requires consultation with key Islamic finance stakeholders so that the impact can be assessed and the necessary amendments carried out based on industry recommendations. The IIFM formed a core working group of major institutions to develop a consultation paper which was the basis of deliberations that took place at the industry-wide consultation meeting organized by IIFM on the 24th November 2020. Currently the core working group is finalizing the recommendations received from the market relating to initiatives to be undertaken by IIFM.
In July, the IIFM joined International Swaps and Derivatives Association, International Capital Market Association, ISLA, London Bullion Market Association (LBMA), UK Finance, Association of German Banks and Australian Financial Markets Association as a co-signatory to a letter submitted to global regulatory bodies to jointly assert their commitment to defining and promoting a digital future for financial markets. The collaboration proposes a series of principles and objectives across three following core areas:
2. Digitization, and
Since the IIFM is mandated to develop standardized documentation and is also exploring the development of digitized and smart contracts, hence it joined as a co-signatory representing the Islamic finance industry in this important initiative.
The IIFM, in coordination with its joint partner ISDA, issues joint legal opinions on the Tahawwut Master Agreement for enforceability of financial contracts in jurisdictions with closeout netting legislation. So far, legal opinions are available on English law, Singaporean law and Malaysian law. In November, the IIFM and ISDA published the ‘Legal Opinion on UAE Federal Law’ for the benefit of its members.
Capacity-building and professional development
Providing training to users of the IIFM standards is part of the IIFM 3-Year Strategic Plan (2017–20). The IIFM is now working with a leading training services provider to develop the training material which will enable the IIFM to offer technical workshops to member and non-member institutions. This will help in creating better understanding on the practical aspects and workings of IIFM published standards and also serve as capacity-building and professional development of financial institutions’ human resources.
Preview of 2021
The IIFM aims to offer these workshops to the market during 2021.
Translation of IIFM standards
In July, as part of its three-year strategic plan, the IIFM released the French language versions of six of its standards relating to hedging and liquidity management. This completed phase one of the translation initiative to support the expansion of Islamic finance in new jurisdictions and territories. The IIFM will also be looking to translate its remaining standards into French as well as other languages in the next phase.
Annual Sukuk report
The annual IIFM Sukuk Report is one of the main references on Sukuk for the industry and the 9th edition of the report was published in July. Work on the 10th edition is currently underway and is expected to be published by mid-2021.
Industry consultation and awareness events
The IIFM organized two Sukuk-related webinars during the year, a joint IIFM–BAFT Trade Finance virtual workshop and a joint IIFM–IFSB High-Level International Seminar (webinar) in conjunction with the 7th Annual Indonesia Sharia Economic Festival 2020. The IIFM was due to hold a virtual industry consultative meeting on ‘Global Benchmark Rate Reforms and Implications of IBOR Transition for Islamic Finance’ on the 24th November 2020. An industry consultation meeting is also being planned for Islamic syndication documentation standardization in early 2021. Besides the aforementioned events, the IIFM also virtually held its board of directors meetings and Shariah board meetings.
Other standardization initiatives
Other initiatives currently being planned by the IIFM are the development of standardized Islamic syndication documentation as well as a joint initiative with the LBMA and the World Gold Council to develop standardized allocated gold documentation.
The IIFM will continue with its standardization and industry development initiatives and during 2021, it will start working on its next three-year strategic plan.
Ijlal Ahmed Alvi is the chief executive of the International Islamic Financial Market.