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Kuala Lumpur. Malaysia’s stock exchange will introduce a global murabaha trading platform next month to serve a market worth more than $100 billion, amid fierce industry debate over the permissibility of the Islamic funding structure.

The system, which is based on the Shariah concepts of murabaha, tawarruq and musawwamah, will involve the sale and purchase of crude palm oil in a series of transactions used as Islamic financing tools.

The aim is not to trade the palm oil itself, but to leverage the assets to use as fund-raising tools for companies unable to tap conventional financing methods.

Initially, up to 1 billion ringgit ($285 million) of deals are expected to be done daily on Bursa Malaysia’s Commodity Murabaha House system. The range of assets used will eventually be widened beyond palm oil, the bourse said.

“As businesses become brisk, global Islamic financial institutions are challenged to enhance product offerings to their customers and manage liquidity, as well as risks using internationally acceptable Shariah solutions,” Bursa chief executive Yusli Mohamed Yusoff said.

“Commodity Murabaha House will serve the growing demand for Shariah-compliant financing needs and close the gap that is currently faced by international Islamic financial players.”

Malaysia is the world’s second-biggest palm oil producer.

Commodity murabaha enables Shariah lenders to create financing transactions that involve specific assets, fulfilling Islam’s demand that all deals must involve real economic activity.

When an Islamic bank uses commodity murabaha to offer financing, it will buy an asset to then sell to the borrower.

The borrower then sells the commodity to a third party using the bank as its agent, and it receives payment and secures the financing it had sought.

Commodity murabaha and some forms of tawarruq have drawn sharp criticism from several clerics who say the structures fall foul of Islamic principles.

Bankers have said commodity murabaha deals can be a sham with no true sale taking place and no real transfer of risk to the buyer of the goods.

The Accounting and Auditing Organization for Islamic Financial Institutions, a top industry body, has said that commodity murabaha, while not invalid, is not ideal.

Tawarruq is an asset sale to a purchaser with deferred payment terms. The purchaser then sells the asset to a third party to get cash. The validity of organized tawarruq, which is where the deals are executed through banks appointed as agents to sell off the commodity, is under debate.

The International Council of Fiqh Academy, a leading industry body, has declared organized tawarruq to be “a deception” that seeks to disguise the use of usury.

But several top clerics, such as Sheikh Nizam Yaquby and Mohd Daud Bakar, have come out in favor of the organized tawarruq structure.

Raja Teh Maimunah Raja Abdul Aziz, Bursa’s global head of Islamic capital markets, said that all transactions done via the bourse’s murabaha platform would involve a true sale with real transfer of ownership and goods that can be delivered.

Shariah scholars who approved the platform include Aznan Hasan, Mohd Daud Bakar, Mohamad Akram Laldin, Sheikh Ghazali Abdul Rahman, Abdul Halim Ismail and Engku Rabiah Adawiah Engku Ali.

Reuters