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KUALA LUMPUR, Feb 2, 2016:

Malaysia’s central bank will launch a new Islamic money market instrument later this week, helping broaden the liquidity management tools available in the country’s Islamic banking sector.

Bank Negara Malaysia (BNM) will auction RM1 billion worth of 9-month and 12-month Islamic treasury bills on Friday, according to regulatory filings.

Islamic money markets have expanded rapidly in the last few years along with the growth of syariah-compliant banking across the Middle East and Southeast Asia, but such tools still lag behind those available to conventional lenders.

The central bank stopped issuing long-term Islamic bonds (sukuk) last year, a move that caused global sukuk volumes to shrink by around 40% in 2015.

The shift away from sukuk was partly due to such instruments being snapped up by too broad an array of investors, preventing them from reaching their intended users among Malaysia’s domestic Islamic banks.

The new T-bills will use a structure known as murabaha, a common cost-plus-profit arrangement in Islamic finance. Under the arrangement, a party agrees to purchase merchandise for another, which promises to buy it at an agreed mark-up.

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