The adoption of Shari a Standard Number 59 regarding the Sale of Debt (
Standard 59) by the Accounting and Auditing Organisation for Islamic Financial Institutions (
AAOIFI) and, in turn, in the United Arab Emirates (UAE) by the UAE Central Bank is causing some consternation for those involved in Islamic finance transactions structured as commodity murabahas (
Murabahas) with variable profit rates (the equivalent of a variable interest rate in a conventional financing). Below, we summarise the issue and outline a couple of potential alternative approaches in the hope of facilitating progress towards a settled market position.
Traditional Murabaha structures
Structuring financings on an Islamic basis remains a key component of ensuring there is sufficient liquidity available to market participants in the UAE and the wider region, especially those seeking to obtain financing on a Shari a-compliant basis. Murabahas (sometimes referred to as cost-plus financings) have been a popular