The process of securing murabaha by posting- or requiring the posting of- some type of collateral such as an issue of sukuk, a central bank’s Islamic certificate of deposit (Islamic CD), or any shari’a compliant instrument or facility. For example, a collateralized murabaha that uses an issue of sukuk as collateral provides an alternative for unsecured commodity murabaha in inter-bank lending markets.

In other words, it constitutes an Islamic monetary instrument that provides a shari’a-compatible financing backed by assets whereby the financier has the right to sell the assets should the client fail to repay its dues. This structure combines the popular murabaha financing mode with sukuk which constitute the pledged asset to secure the transaction. Accordingly, collateralized murabaha is a low credit-risk financial instrument that enables collateralized interbank transactions in the Islamic Money Market. It is designed to add diversity to the existing liquidity management tool and enhance liquidity levels in the Islamic financial market.

Collateralized Murabaha can be used by Islamic financial institutions to obtain liquidity from an Islamic bank under the standing facility. It can also be expanded to facilitate daily Islamic money market operations in the interbank market.