The Dubai Mercantile Exchange is mulling plans to structure a Sharia-compliant vehicle in which local banks can finance underlying physical oil traded on the bourse.
Dubai Mercantile Exchange considers physical asset backed financing
"The idea of physical asset backed financing is starting to develop in the Gulf, and among my discussions with six Gulf banks, they all were looking to finance asset-backed commodities," said Christopher Fix, the chief executive at Dubai's commodity exchange.
"The plan is to introduce Islamic finance to our clients in the next two to three years, because at the end of the day, we are a physical oil exchange."
It comes after a handful of Arabian Gulf players that have entered the business of credit trade finance in commodities amid a pullback by French banks, that have traditionally dominated the market, after the European debt crisis affected their ability to lend.
"The players in the region don't want to depend on French banks because they have started to pull their financing. It has already happened with the major banks," Mr Fix said.
"They have issues with their loan portfolio, and there's a need for them to invest in their home market, whereas the Gulf lenders represent an opportunity to participate. Because of their petrodollars they are able to make money and win market share."
Volumes of crude oil traded on the DME have grown to about 3.5 million barrels per day since it started its operations five years ago.
The bourse got a boost when the Chicago Mercantile Exchange, the world's largest commodity bourse, increased its holding in the DME, becoming the major shareholder.