ABC Islamic Bank hosted a group of regional and international banks at the signing of the first stage Modaraba syndication of an $80 million commercial master Murabaha structured for Vitol of Switzerland.
Modaraba is an Arabic that means ‘business’, in which capital is provided by one party while efforts and skills are contributed by another party. During the lifetime of the project the lender is the sole owner of the project and the borrower is the manager. In a Modaraba arrangement financial losses have to be borne exclusively by the lender.
Murabaha is a contract of sale in which the seller declares his cost and profit. This has been adopted as a mode of financing by a number of Islamic banks. As a financing technique, it involves a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost, which is settled in advance.
The facility’s mandated lead arranger is ABCIB Islamic Asset Management (IAM), London. Vitol IAM signed an agreement that forms the basis of a Modaraba for participating Middle Eastern banks. The Murabaha transactions envisaged under the arrangement involve IAM in the individual purchases of physical Refined Oil Products such as Jet Fuel from a refinery supplier at the tap of their storage tanks, and their sales to Vitol on deferred payment terms.
The facility is the first Islamic financing to be arranged for Vitol, one of the world's largest physical oil traders and has an innovative structure that focuses upon the real underlying physical trade that is the basis for Shariah-compliant financing.
The initial group of banks acts in the capacity as Co-Mudaribs for the first drawings, allowing other banks to join at a later stage when the facility can be increased to include further purchases of refined products.
Among the participating Co-Mudaribs are ABC Islamic Bank, Arab Bank London, Qatar National Bank and International Islamic Arab Bank. — (menareport.com)
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