By Marcus Leach
Thomson Reuters today (Tuesday) launched the world's first Islamic finance benchmark rate, designed to provide an objective and dedicated indicator for the average expected return on Shariah-compliant short-term interbank funding.
The Islamic Interbank Benchmark Rate (IIBR), announced at the 18th Annual World Islamic Banking Conference in Bahrain, uses the contributed rates of 16 Islamic banks and the Islamic sections of conventional banks to provide a reliable and much-needed alternative for pricing Islamic instruments to the conventional interest-based benchmarks used for mainstream finance.
"The delinking from conventional performance benchmarks started more than a dozen years ago and now we are extremely proud to offer the world's first Islamic pricing benchmark, the Thomson Reuters Islamic Interbank Benchmark Rate," said Rushdi Siddiqui, global head of Islamic finance, Thomson Reuters.
"We have taken a collaborative approach as industry challenges are best solved by industry players working towards a common objective. The simplicity and robustness of the new benchmark's methodology, governance, and transparency, combined with the endorsement of many respected Islamic financial institutions and scholars, will result in a reliable and realistic benchmark that better measures cost of funding for Islamic financial institutions. Together we are taking an important step forward for Islamic finance authenticity."
The benchmark's ongoing implementation and integrity will be overseen by an Islamic Benchmark Committee of over 20 Islamic finance institutions, chaired by Dr. Nasser Saidi, chief economist of the Dubai International Financial Center (DIFC), and a Shariah Committee consisting of four world-respected Shariah scholars.
"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," Dr. Nasser Saidi, chair of the Islamic Benchmark Committee and chief economist, Dubai International Financial Centre, said.
"Conventional money markets have relied on LIBOR, which by definition does not comply with Shariah conventions. Islamic markets will be able to rely on the IIBR and it will become an international reference rate for both conventional and Sharia-compliant transactions. Our aim is to provide an IIBR that is reliable, timely, representative of market conditions, transparent in its construction and accepted as the market reference. Islamic money and financial markets are coming of age and becoming part of the mainstream."
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