Dubai Islamic Bank Pakistan Limited (DIBPL) has concluded a first of its kind shariah-compliant synthetic foreign exchange (FX) hedging arrangement in Pakistan.
Until this arrangement, there was no product available in Pakistan which would allow companies to hedge their FX exposures on long term financing in a shariah-compliant manner. This unique structure shall allow the company to hedge its critical FX exposure while remaining shariah-compliant.
The arrangement has been carried out for a long-term financing facility in foreign currency for a company, Engro Polymer & Chemicals Limited (EPCL).
Junaid Ahmed, CEO, DIBPL commented:
This innovative transaction will allow Islamic banks to enter into this niche segment in Pakistan, which was previously not fully open for them.
This is a landmark deal, which will create the foundation for the development of further FX hedging markets in Pakistan. DIBPL is glad to have helped provide an innovative Shariah-compliant risk management solution for EPCL.
Established in 2006 in Pakistan, DIBPL is the wholly-owned subsidiary of Dubai Islamic Bank UAE, which is the world’s first Islamic Bank set up in 1975.
Syed Abbas Raza, Chief Financial Officer, EPCL said,
Pakistan has gone through some turbulent external situation of late which has led to substantial variation in the exchange rates, which necessitates effective management of FX risk. This was a key concern for the Company after concluding the foreign currency term finance facility. With this new structure designed jointly by the EPCL and DIB teams, we have Alhamdulillah neutralized the FX exposure, generated by Shariah Compliant financing.