First Islamic repo transaction explained

Author: | Published: 11 Aug 2011

The first Islamic repo product in the Gulf Cooperation Council (GCC) area has been executed in Abu Dhabi, providing the region’s Islamic banks with a new tool to manage short-term liquidity.

The National Bank of Abu Dhabi (NBAD) and the Abu Dhabi Islamic Bank (ADIB) concluded a $20 million, one-week master collateralised murabaha agreement against Malaysian and Abu Dhabi government-related entity sukuk on August 3.

Islamic banks have a number of hurdles to accessing short-term liquidity. Shariah requirements keep them to a limited range of products and sectors, while banks’ credit ratings are often low due to their political risk and relative youth. This makes accessing the interbank lending market difficult.