LONDON, 24 June 2007 — CIMB Group, Malaysia’s second largest financial institution, intends to become a major foreign player in Islamic finance in the UK with the signing of two agreements with the London-based European Islamic Investment Bank (EIIB): a Commodity Murabaha agreement and a Foreign Exchange (FX) forward agreement. CIMB at the same time signed an agreement with Bank Negara Malaysia (BNM), the Malaysian central bank, to participate in the latter’s Commodity Murabaha Program (CMP).

The agreements were signed on the sidelines of the London Sukuk Summit, which was attended by Dr. Zeti Akhtar Aziz, governor of Bank Negara Malaysia; Etsuaki Yoshida, deputy director of the Japan Bank for International Cooperation (JBIC); and Michael Ainley, head of financial institutions at the UK’s Financial Services Authority (FSA) —a the banking regulator.

CIMB Group is also in negotiations with other counterparties in the UK and Europe to expand the distribution of its Islamic financial products. The group has a branch in London under the CIMB bank brand.

BNM, together with the Securities Commission of Malaysia and Bursa Malaysia (the stock exchange) and industry players, in April 2007 launched the Commodity Murabaha Program (CMP), which will act as a liquidity management scheme for Islamic bank overnight and short-term deposits, using crude palm oil as the underlying commodity trade for investment. BNM has executed CMP master agreements with 8 Islamic banking institutions to promote the use of the instrument for liquidity management.

Badlisyah Abdul Ghani, executive director and CEO of CIMB Islamic Bank, said “commodity Murabaha is an established structure. What is not liked is when the proceeds of the commodity Murabaha are used for non-Shariah purposes. This is indeed the case and this leakage of Islamic funds is huge.”

“We estimate it to be over $1.2 trillion. The basic funds are mostly invested in US treasuries and non-Shariah compliant investment products. We need a situation where commodity Murabaha conducted in the market is done in such a way that the proceeds arising from the transaction are utilized in an Islamic manner, and this is addressed in the agreements we are signing today,” he added.

These new developments further strengthen CIMB Group’s presence in the Islamic Banking industry in the UK, specifically in Islamic money market and foreign exchange segments.

Abdul Ghani told Arab News that it was timely for the group to leverage its presence in the UK by formalizing the agreements with EIIB.

“Our license in the UK allows us to operate a wide array of Islamic banking businesses and we are constantly enhancing these service offerings to cater to our wide customer base, including those in the Gulf Cooperation Council (GCC). This development will also support BNM’s objective in encouraging Malaysian banks to promote and expand their Islamic banking activities in overseas markets,” he said.