February 16, 2010 / 4:48 PM / 10 years ago

StanChart to launch Islamic commodity derivative

DUBAI (Reuters) - Standard Chartered Bank Saadiq (STAN.L) expects to launch an Islamic commodity derivative in the first quarter, the bank’s chief executive said on Tuesday.

Afaq Khan, Chief Executive Officer, Islamic Banking, Standard Chartered Bank, speaks during the Reuters Islamic Finance Summit in Dubai February 16, 2010. REUTERS/Nikhil Monteiro

Speaking at the Reuters Islamic Banking and Finance Summit, Afaq Khan said the bank was in advanced discussions with counterparties in the Middle East, including trading companies and government entities, to launch the product.

“Basically if you want to hedge oil rice, wheat, sugar or steel, we will be in a position to offer that in a sharia complaint manner,” he said.

Khan said the bank had spent about 15 months creating the product, which will be endorsed by the bank’s sharia board.

“(We are in discussions) with trading companies and some government entities in countries where the government is trying to manage the price of essential commodities,” Khan said.

To comply with Islamic law, the product would need to have access to or possess the product, Khan said.

“If you have a view on the price of rice and want to maintain the price of rice in the market, then you can hedge the price movement down the line and we would be able to make you a price so you can manage the cost in your local economy,” Khan said.

The customers for the product would be importers, exporters or distributors who “want to fix” the price of the commodity, Khan said.

Islamic scholars are split on the legitimacy of derivatives; some see them as permissible instruments to hedge risks but others as speculative transactions, which Islam forbids.

Some Islamic operators have used a contract known as Arbun to replicate call options.

Reporting by John Irish, Tamara Walid, Shaheen Pasha and Rachna Uppal; Editing by Louise Heavens

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