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Best new product: Abu Dhabi Commercial Bank’s meethaq mudarabah overdraft facility

Pushing beyond the boundaries

It took Abu Dhabi Commercial Bank just three weeks to finalize the structure and documentation for its innovative Shariah-compliant overdraft facility for Abu Dhabi Investment House (ADIH). The product structure, which ADCB conceived in conjunction with Islamic finance advisory house Dar Al Istithmar, is based on a Mudarabah relationship between the client and the bank, whereby the client is able to borrow money to meet any shortfall in its current or projected needs. The mudarabah concept is a universally accepted Islamic finance model that requires that the overdraft be used solely for Shariah-compliant business activities.

Under the terms of the agreement ADIH committed itself to pay ADCB a profit rate of not less than three-month Eibor plus 150 basis points over the 12-month tenor of the overdraft. The innovative structure of the facility revolved around a unique point-based system under which the mudarib (client) receives a bonus if the share of the profits of the rab al maal (lender) in the business activities funded by the overdraft exceeds a certain threshold, while at the same time the client promises to pay the lender compensation if profits are lower than forecast.

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