Mg at 20:53, 3 March 2010

2010-03-03T20:53:28Z

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Benchmarking in the context of [[Islamic finance]] refers to the practice of using [[LIBOR]] or other Interbank interest rates as a benchmark when pricing asset finance transactions in [[Islamic Finance]]. For example, in an [[ijara]]-based transaction, the rent is often quoted based on a spread over [[LIBOR]].

The permissibility for using [[LIBOR]] is described by Sheikh Taqi Usmani and Sheikh Nizam Yaquby [http://www.zawya.com/printstory.cfm?storyid=ZAWYA20061219122619&l=081434061220] with the example of two brothers: One is selling alcoholics the other soft drinks. The brother selling alcoholics is adding 20% on the price for alcoholics he buys. The other brother uses the margin on the alcoholic drinks to establish the pricing margin of 20% for his soft drinks.

While this example explains that pricing according to a benchmark otherwise forbidden could be regarded as permissible, the majority of scholars dislike this practice and would prefer that an Islamic benchmark will develop once the industry growths further.
==References==
* Gassner, Michael Saleh. [http://www.zawya.com/printstory.cfm?storyid=ZAWYA20061219122619&l=081434061220 "Sukuk structures"], ''Banker Middle East'', December 2006.
* [http://www.isra.my/component/content/article/4-mudaraba-financing/217-benchmarking-against-libor.html Fatwa Benchmarking Against LIBOR]

Benchmarking - Revision history

Mg at 20:53, 3 March 2010