SWIFT, in collaboration with The Association of Islamic Banking Institutions Malaysia (AIBIM) and the Malaysian Islamic financial community, will launch a new rulebook for the usage of SWIFT messages for Islamic finance that will be made available to the Message User Group (MUG) by the end of 2014.
The MUG is a group of users that have registered to use specific messages within a controlled user community. For Islamic finance, the MUG is open to all markets that wish to utilize financial messaging in compliance with this set of practices, and while Islamic financial institutions have been able to use SWIFT, there will soon be greater clarity around the use of SWIFT MT (message type) messages based on Islamic principles, which will allow for greater straight-through processing (STP).
“Globally over 300 Islamic financial institutions are registered as SWIFT members, however, they only use SWIFT messages for funds transfers for cash settlement. Islamic finance transactions are mostly executed outside SWIFT over the phones, emails and faxes,” says Kiyono Hasaka, Standards Specialist, Asia Pacific, SWIFT. “STP is possible because Islamic finance transaction data will be exchanged electronically through SWIFT international messaging standard, replacing bilateral and manual exchanges of Islamic finance confirmations.
“For example, Commodity Murabahah is an Islamic deposit service with a fixed profit rate of return via the buying and selling of commodities. Confirmation data can be exchanged electronically between parties accepting or placing the deposit using SWIFT MT 620 ‘Islamic Commodity Placement Confirmation’ over SWIFT network replacing paper-based confirmations.”
The new rulebook also defines how to use fields specific to Islamic finance transactions within thse messages, such the use of “Commodity Murabahah Agreement Date” in Field 77D and “Next Profit/Hibah Due Date” in Field 30X of MT 620, says Hasaka. Plus, new codes were added to express Islamic finance concepts.
Hasaka notes that these are not fundamental changes, but by using more electronic and automated messages, these institutions can reduce risk, cost and improve efficiency.
New SWIFT Rulebook Will Facilitate STP for Islamic Finance
SWIFT, in collaboration with The Association of Islamic Banking Institutions Malaysia (AIBIM) and the Malaysian Islamic financial community, will launch a new rulebook for the usage of SWIFT messages for Islamic finance that will be made available to the Message User Group (MUG) by the end of 2014.