The Dubai Multi Commodities Centre is to launch a Sharia-compliant product aimed at sophisticated investors in global commodities markets.
The instrument, a "commodity murabaha" will enable investors to trade in asset-backed warrants via the DMCC's Tradeflow platform, which is a growing part of its business centred on the Jumeirah Lakes Towers free zone.
Murabaha is one of the basic forms of Islamic instruments that enables traders to deal in interest-free transactions. Interest, or "riba", is forbidden in Sharia-compliant finance.
"The big trading families of the region have always been keen on the commodities business, and they will be even more so if we can offer products that are Sharia-compliant," said Ahmed bin Suleyam, the executive chairman of the DMCC.
The Tradeflow murabaha has been issued a fatwa allowing it commence trading by Hussain Hamed Hassan, chairman of the fatwa and Sharia supervisory board of Dubai Islamic Bank and one of the world's leading Islamic financial scholars. "It is an interbank market for Sharia-compliant funds, the first in the GCC," said Mr bin Sulayem. Trading in the new product is expected to begin in the first half of this year.
It will enable traders to deal in asset-backed securities in the form of warrants issued against physical assets stored in the DMCC. It has grown out of the market in Dubai Commodity Receipts, which were launched in 2004 and became a US$1 billion (Dh3.67bn) business involving commodities such as oil, precious metals, steel, cotton and other agricultural products.
Mr bin Sulayem's initiative comes after the announcement by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, that Dubai aimed to become a centre for Islamic finance and economy.
"We have a proven track record in Islamic finance, ever since we launched our $200 million gold sukuk back in 2005. It helped fund our expansion without putting a burden on the Government, and we're well prepared to do whatever is necessary to help ensure the current ambitious project is a success," said Mr bin Sulayem.
The DMCC has developed Sharia-compliant hedge funds specialising in gold and resources, and electronically traded funds in gold listed on the Nasdaq Dubai market.
Mr bin Sulayem recently made presentations to the government-appointed committee supervising the Islamic strategy. "They listened to our story and I think they were impressed. We're ready to support the initiative in any way to help ensure its success," he said.
Tradeflow also provides a warehouse inspection and ratings service to ensure high standards in commodity storage facilities, and this will be extended to include halal warehouses this year.
The Islamic initiative by Sheikh Mohammed has resulted in a renewed surge in Sharia-compliant industries, especially in finance. Shuaa Capital, the UAE investment bank, recently applied to the Central Bank to operate a Sharia-compliant business through its subsidiary Gulf Finance Corporation.
