A recent press release from Norton Rose, a prominent UK law firm that is very active in the Shari`ah compliant finance sector, describes a proposal--advanced by one of its lawyers--that transactional messaging associated with a popular class of Shari`ah compliant transactions (treasury commodity murabahahs) be standardized as per SWIFT, the financial messaging ("wire") system used by banks throughout the globe. Of particular interest to us is the potential that this proposal has to promote tighter Shari`ah compliance by the SCFIs banks themselves. The text of the article follows:

Mohammed Paracha, Deputy Head of the Global Islamic Finance practice at Norton Rose Group has been assisting Swift with the development of Shariah compliant messaging standards for carrying out murabaha trades, a liquidity management product used by all Financial Institutions engaged in Islamic deposit taking.

Swift has been working closely with its Islamic banking members on the standardisation and automation of Islamic financing products. The first to be addressed is the treasury murabaha, which reportedly represents 60% of all Islamic financing, but is manually processed today. Mohammed Paracha first highlighted the possibility of murabaha processing over Swift and worked closely with Swift in its development.

The cost efficiencies of the new Swift standards will require treasury management documentation to be reviewed and amended to take advantage of the new messaging system. This effectively would mean there is no longer a need to send offers and acceptances out which some internal studies estimated had a back office cost of $150 per trade. The same trade can now take place for cents.

In addition to the cost efficiency, the Swift system allows monitoring of the order of transactions so allows a Shariah audit of murabaha trades and prevents selling a commodity that has not been the subject of a proper offer.

Mohammed Paracha commented "The Islamic Finance industry continues to rely on murabaha transactions as its bedrock form of liquidity management. In the absence of alternatives, the industry should see the introduction of Swift and its endorsement by AAOIFI as an extremely positive step, reducing its back-office operations cost base for each trade. In addition, the implementation of Swift messaging into systems could lead the way to the automation of Shariah compliance and auditing - something that the industry has yet to explore or embrace and may be the next logical step forward for the industry in commoditised product areas such as this."

Peter Ware, Head of Islamic finance at Swift commented, "Mr. Paracha first suggested the idea of Murabaha processing over Swift. Upon investigation we found that whilst the money movement was already on Swift, the commodity part of the transaction was being processed manually. He was instrumental in raising our knowledge of Murabaha, and subsequently introducing us to Islamic scholars, as well as relevant contacts within Islamic banks and brokers. He also moderated our first Islamic Finance panel at the Sibos conference in September 2009."

With over 50 partners and associates across the world advising on Islamic finance matters, Norton Rose Group continue to be at the forefront of Islamic finance and Islamic 'thought leadership' and posses unrivalled technical and commercial knowledge. Norton Rose Group is a recognised market leader in this area, with legal directories such as Chambers Global (2009) describing their practice as "the broadest Islamic finance offering on the market."