CBB launches new liquidity management tool

Bloomberg/Phil Weymouth

The Central Bank of Bahrain (CBB) has launched a new liquidity management tool for Islamic retail banks.

The central bank said that the tool is based on the ‘Single Binding Wa’ad based structure’ is developed by the International Islamic Financial Market (IIFM) and International Swaps and Derivatives Association (ISDA), and it represents a Shari’ah-compliant alternative to Foreign Exchange Forward Contracts.

The single binding Wa'ad based structure involves one party who is looking for a hedge to purchase a specified currency at a future date based on the rate determined today, providing a binding Wa'ad (promise/undertaking) to purchase such currency.

The tool is considered the latest effort by the financial industry body to improve the available hedging practises in the Islamic banking sector.