Manama: UBS, the world's largest wealth manager, aims to unlock the secondary market for Islamic financial instruments through a new type of commodity linked investment certificate, the Swiss bank told Reuters.
UBS has applied for a patent for the certificate's structure, which circumvents the Islamic law prohibiting the trade of debt, which has proven a bottleneck to establishing a liquid secondary market for Islamic investment vehicles.
"Many of the Sharia (Islamic law) compliant investments are not tradable in compliance with Sharia. That is because you would be viewed as buying or selling debt," David Kemp, director of UBS's Islamic Finance Group said in an interview. "The way that we've managed to structure our (commodity linked) certificates, they are not considered debt. We've been able to create something tradable ... We're so pleased with this structure we're actually applying for a patent," he added.
Kemp declined to comment on details of the structure. He said UBS would help also act as a market-maker, which involves quoting a buy and sell price for a financial instrument in the hope of buying low and selling high.
UBS said it was linking the certificate to commodities because of the bullish global commodity market, and because sharia demands that investments are linked to a tangible asset, not an interest bearing one.
"You have a very dynamic Islamic finance market while at the same time you have a very dynamic commodity market ... For making a product sharia compliant you need to have real asset," Peter Ghavami, a managing director of UBS's commodities arm.
