SWIFT today announced that ISO 15022 message standards for the processing of treasury Murabaha transactions have been certified compliant with the international Islamic finance standards issued by AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions). This certification paves the way towards the automated processing of Murabaha treasury transactions, which reportedly represent 60% of all Islamic financing.
Murabaha includes a money transfer and a commodity trade. SWIFT has carried the money transfer for many years, whilst the commodity trade has been completed manually, usually by fax without any globally agreed standard. SWIFT's solution uses the ISO 15022 message standards within the guidelines of a Murabaha Standards Rulebook (the guidelines can be downloaded from www.swift.com/IslamicFinance).
"AAOIFI is responsible for global Islamic finance industry standards and we establish best practices for the industry", said Dr. Mohamad Nedal Alchaar, Secretary General of AAOIFI. "Our collaboration with SWIFT aims to build a well-structured and well-regulated international Islamic finance infrastructure".
Alain Raes, SWIFT's Chief Executive for Europe, the Middle East and Africa, who accepted the compliance certificate on SWIFT's behalf at the recent Sibos conference in Amsterdam, said: "SWIFT is very pleased to have AAOIFI's endorsement. Our goals are aligned and we serve the same members. Murabaha automation is the first step on a long journey of collaboration with the Islamic financial community."
The use of ISO 15022 messages over SWIFT does not change the current process between banks, their customers and brokers. However, the data defined in the schedules under the terms of the Master Murabaha Agreement is now exchanged using standardised messages via SWIFT as opposed to bilaterally agreed confirmations exchanged manually. Participants involved in Murabaha will benefit from a globally agreed electronic standard, automation which will lead to a reduction in costs and risk, and an audit trail for Sharia compliance.
Mohammed Paracha, Deputy Global Head of Islamic Finance at international legal practice Norton Rose Group first highlighted the possibility of Murabaha processing over SWIFT. Mr. Paracha commented, "The Islamic Finance industry continues to rely on Murabaha transactions as its bedrock form of liquidity management. In the absence of alternatiof alternatives, the industry should see the introduction of SWIFT and its endorsement by AAOIFI as an extremely positive step, reducing its back-office operations cost base for each trade. In addition, the implementation of SWIFT messaging into systems could lead the way to the automation of Sharia compliance and auditing
More than 240 Islamic banks representing 84% of global Sharia compliant assets are members of SWIFT. "We have worked with numerous banks and brokers in Bahrain, Kuwait, Saudi Arabia, the UAE, Malaysia and the UK to understand their needs and enable the ISO 15022 messages as a solution", said Peter Ware, Head of SWIFT's Islamic Finance Initiative.
Islamic finance is growing at more than 20% per annum, and the demand for Sharia compliant messaging standards is increasing as a result. SWIFT is working with the Islamic financial community to address this demand, both at the level of individual banks, and with organisations such as AAOIFI and AIBIM (the Association of Islamic Banking Institutions Malaysia).