CIMB launches Islamic product in Hong Kong

The Murabahah-based product allows for the opening of an Islamic interbank money market in the city.
CIMB Islamic yesterday launched a Commodity Murabahah Deposit product in Hong Kong, which will be available through the Hong Kong branch of its affiliate CIMB Bank. The move expands Hong KongÆs nascent Islamic banking sector and allows for the opening of an Islamic interbank money market in the city.

The product is based on Shar'iah principles that forbid the charging of interest as well as investments in prohibited activities such as liquor and gambling enterprises. It will be backed by commodities, including palm oil and different metals.

A Murabahah product offers investors fixed returns through the prior statement of costs by the seller or bank.

CIMB IslamicÆs product launch in Hong Kong is part of its strategy to provide Islamic solutions throughout the region. ôThe idea is essentially to barter Islamic banking or Islamic activities across the region, so without having the Hong Kong component, the jigsaw puzzle is incomplete,ö says CIMB Islamic executive director and CEO Badlisyah Ghani.

This is the first Islamic interbank money market instrument to be launched in Hong Kong. The bank has signed an agreement with Hong Leong Bank, enabling the Hong Kong bank to launch a Shar'iah-compliant interbank solution based on the product yesterday.

ôI donÆt see immediate volume,ö says Ghani on Hong KongÆs nascent Islamic interbank money market. ôOver time we anticipate other financial institutions to also establish an Islamic window [in Hong Kong] and then we will be able to interact.ö

CIMB hopes the Shar'iah-compliant interbank market in Hong Kong will one day equal MalaysiaÆs current daily volumes. According to Malaysia's central bank, daily interbank volumes amount to approximately $37 million. In 2007, annual activity surpassed $100 billion.

According to Ghani, CIMB IslamicÆs strategy is to build on Hong KongÆs strength as an international hub and gateway to China. ôOf course we already have the ability to have counterparties outside of Hong Kong,ö says Ghani. ôFrom interbank our ultimate aim is to broaden that activity to go to institutional clients.ö

Hong Kong is in the process of developing a local Islamic finance industry. Chief executive Donald Tsang outlined plans to attract Islamic banking products in his 2007 policy address and the city launched its first Islamic retail fund in November last year. However, to make Islamic products competitive and ensure returns are in line with their traditional counterparts, Hong Kong needs to make changes in its tax code.
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