27 Mar, 2019
The Waqf Fund of the Central Bank of Bahrain organized its 12th Waqf Fund Roundtable Discussion on “Creating an Islamic Profit Rate Benchmark—Why and How?” It was held at the Ritz Carlton Hotel, Manama, Bahrain, on 25 March 2019.
The roundtable was organized in response to the announcement that LIBOR, a widely used interest-rate benchmark, will be phased out by the end of 2021, according to United Kingdom’s Financial Conduct Authority. Banks therefore need to examine the possible alternatives to LIBOR.
In this context, the roundtable discussed various possible alternatives for a benchmark for pricing Islamic credit instruments. Mr. Khaled Hamad, chairman of the Waqf Fund, inaugurated the roundtable, stating the importance of an Islamic benchmark (or a set of benchmarks) in line with the principles of Islamic finance that emphasize the integration of finance with the real economy. Br. Omar Nasari of AAOIFI, Dr. Yahya Abdul-Rahman (LA Riba, USA), Dr. Younes Soualhi (ISRA, Malaysia), and Dr. Sami Al-Suwailem (IRTI, Jeddah) presented different viewpoints on the subject.
IRTI has been concerned with developing an alternative for LIBOR for quite some time. The approach is based on systematic surveys of expected inflation and expected output, which can be used to develop a benchmark for credit pricing. The approach is (almost) model-free and thus robust to various economic environments. Moreover, it is simple and doable with reasonable costs. Blockchain technology can be used to verify and validate the survey outcomes.
Several researchers, experts, and practitioners attended the roundtable. The discussions were enlightening and fruitful, and the Waqf Fund will consider another round of discussions in the near future.