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Mashreqbank plans Islamic energy futures

Gulf Times, Doha, Qatar, September 8, 2006

Dubai: Dubai-based Mashreqbank is structuring an Islamic energy futures contract for trading on the emirate's new energy bourse next year, a senior bank official said.

Taha El Tayeb Ahmad, vice-president of Mashreqbank's Islamic finance unit Badr Al-Islami which will launch services later this year, said the bank's product development team is working on a contract for oil or gas assets for future delivery.

It is due to be traded on the Dubai Mercantile Exchange (DME) from the second half of 2007.

The contract will be based on the Islamic principle of salam, which involves the sale of commodities at a future date for a cash price.

"The salam contract provides the impetus for the development of futures and forwards contracts that are backed by commodities," Ahmad told Reuters on the sidelines of an Islamic funds conference.

"What we are proposing is an idea in Shariah that has been there for a long time but it is not exploited."

Ahmad said listing an Islamic futures contract would open up a new, short-term avenue for Islamic banks to invest depositors' money. Islamic banks face a shortage of instruments in which to invest funds.

"Islamic banks have liquidity and they have customers who are looking for alternatives to investing their money, rather than leaving it sitting idle in the bank," Ahmad said.

DME Chief Executive Officer Gary King said on Tuesday the exchange would consider listing an Islamic commodities contract if it would fill a market need.

The DME, a joint venture between the Dubai government and the Nymex, will debut with an Oman crude oil futures contract before the end of the year.

Alternative way for investment

  • The contract will be based on the Islamic principle of salam, which involves the sale of commodities at a future date for a cash price.
  • Ahmad says listing an Islamic futures contract would open up a new, short-term avenue for Islamic banks to invest depositors' money.
  • DME says 'we are open to new products that are suggested by the market. Islamic products are very interesting to us.'