Central Bank of UAE launches Shariah-compliant short-term lending service
A Sharia-compliant short-term lending facility has been created by the Central Bank of the UAE to complement a similar conventional facility in case banks face the same kind of cash shortages experienced during the financial crisis. The Central Bank said in a statement that from April 1 it would be extending the eligible collateral to include Sharia-compliant securities other than the Islamic certificate of deposits issued by it.
“Islamic banks operating in the UAE can access funds from the Central Bank on an overnight basis by posting eligible securities via Triparty Collateral Management Agreement signed with either Clearstream Banking or Euroclear Bank,” the statement said.
As part of efforts to strengthen the financial system, the Interim Margin Lending Facility was introduced last year to provide funding on an overnight basis for banks that are able to provide eligible securities as collateral.
The Central Bank established that facility after consultations with the UAE Banks Federation. Many UAE banks received government support in the aftermath of Dubai’s debt crisis in 2009, much of which has been paid back.
Eligible assets that can be used as collateral include bonds, sukuk and securities issued by the UAE Federal Government or authorities in individual emirates, as well as banks and corporations that are based in the UAE.
Securities issued by foreign governments, banks, corporates and supranational agencies will also be accepted as collateral, but must carry a minimum A rating from agencies.
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Updated: March 24, 2015 04:00 AM