The AAOIFI Governance and Ethics Board (AGEB) issues syndicated financing exposure draft

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in the 23rd meeting of its Governance and Ethics Board (AGEB / the board) approved the issuance of the exposure draft of governance standard on syndicated financing.

As a common business practice, Islamic financial institutions (IFIs), form syndicates to meet large-size financing needs of sovereign or corporate customers where a single IFI is not able to finance the whole transaction amount or cannot take such large exposure on a single customer, or other plausible reasons. The syndicated financing transactions potentially face certain Shari’ah compliance, and additionally certain governance, control and risk issues. The board identified a need to develop a standard on syndicated financing that aims to set out a framework for governance of syndicated financing transactions over the entire lifecycle of such transactions in line with the best governance practices and Shari’ah governance.

The standard sets out the essential requirements related to Shari’ah compliance, transparency, fair dealings / avoidance of conflict of interest and other good governance practices as applicable at various stages / phases of a syndicated financing transaction. Such phases include award of mandate, marketing and negotiation, transaction close, continuity of the transaction and its maturity / liquidation (whether early or as per original maturity).

Mr. Farrukh Raza, Chairman, AGEB stated: “AGEB aims to encourage best governance practices across various areas which are essential for the development of the Islamic finance industry. Syndicated financing transactions involve multiple parties and stakeholders, as well as, normally a larger amount of financing and therefore are prone to additional risks from the perspective of Shari’ah compliance, Shari’ah governance, transparency and fair and equitable treatment of stakeholders.” He added: “Once this standard is finalized, I am confident it will bring enhanced governance into practice and strengthen the trust in syndicated financing transactions to the best interest of Islamic finance industry”.

On this occasion, Mr. Omar Mustafa Ansari, the Secretary General, AAOIFI stated: “I would like to thank the board and the relevant working group members for their outstanding efforts and dedication”. He added: “It’s an honour to announce the issuance of the exposure draft of syndicated financing and I am looking forward to the issuance of the final standard, after the completion of the due process. In terms of the way forward, the public consultation process will start, and comments will be compiled, and any suitable changes will be incorporated”.

The public hearings for the standard will be held in the upcoming months in different parts of the world and / or on virtual basis to obtain industry feedback on the exposure draft in addition to comments in writing.

Further details with respect to dates and venues, will be announced shortly via the AAOIFI website. Comments on the exposure draft are welcomed and should be directed no later than 15 February 2022 to [email protected] All comments and suggestions of the public hearings and written comments are presented to AGEB to discuss and to make necessary changes before issuing the final standard.

The exposure draft on syndicated financing can be accessed by CLICKING HERE

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