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SYDNEY, June 7 (Reuters) - Malaysia's central bank will eventually expand its new Islamic money market funding facility to allow trades of the instrument between commercial banks, while introducing longer tenors, the central bank said on Thursday.
The central bank announced last week that it was launching a collateralised murabaha facility through which Islamic banks could obtain funds from the central bank by pledging high investment grade sukuk as collateral. The new facility aims to aid Islamic banks' liquidity management.
The central bank told Reuters in an email on Thursday that use of the collateralised murabaha instrument would later be expanded so that banks could trade it between themselves in the interbank market. It did not give a time frame.
Currently, the facility is for overnight funding but it will be extended to longer tenors in the near future, the central bank said without giving a precise date.
Funding is only in ringgit but collateral can be denominated in other currencies, which could encourage the participation of foreign banks, many of whose sukuk holdings are mostly U.S. dollar-denominated.
Currently, Islamic banks can obtain funds from the Malaysian central bank through a deferred-payment sale agreement, but this structure is not considered permissible by some sharia scholars outside Malaysia so banks from the Gulf have been reluctant to use it. The new facility is likely to be more acceptable to banks from the Gulf, bankers believe.
Editing by Andrew Torchia