Development of Liquidity Management Instruments:
International Conference on Islamic Banking: Risk Management, Regulation and Supervision - 2003
DEVELOPMENT OF LIQUIDITY MANAGEMENT INSTRUMENTS: CHALLENGES AND OPPORTUNITIES
By Abdul Rais Abdul Majid Chief Executive Officer International Islamic Financial Market (IIFM)
International Conference on Islamic Banking: Risk Management, Regulation and Supervision Jakarta –Indonesia Sept 30- to October 3, 2003
( 1 of 24 Pages )
International Conference on Islamic Banking: Risk Management, Regulation and Supervision - 2003
1.0
Introduction
Liquidity management is part of the larger risk management framework of the financial services industry, which concerns all financial institutions whether they are conventional or Islamic. Studying liquidity management issues is a critical but complex subject. Failure to address the issue may lead to dire consequences, including banking collapse, and by extension, the stability of the financial system. In fact, most bank failures are due to difficulties managing their liquidity problems.1 This is also the reason why regulators are very concerned with the liquidity position of financial institutions and current thinking of regulators centre around the strengthening of liquidity framework.
For Islamic financial institutions, liquidity management is more unique due to the fact that most available conventional instruments used for liquidity management are interestbased, therefore, not sharia‟a compatible. It follows, then, that in the absence of shariah compatible instruments, there can only be limited development of the Islamic interbank money market. The money market is an important component of the liquidity management framework as it is the first avenue to place or borrow short term funds. This gives more reason why addressing liquidity management is very critical to Islamic banks since IFI faces bigger challenges due to sharia‟a considerations and the nature of their operations.
1
Mark Largan Banking
DEVELOPMENT OF LIQUIDITY MANAGEMENT INSTRUMENTS: CHALLENGES AND OPPORTUNITIES
By Abdul Rais Abdul Majid Chief Executive Officer International Islamic Financial Market (IIFM)
International Conference on Islamic Banking: Risk Management, Regulation and Supervision Jakarta –Indonesia Sept 30- to October 3, 2003
( 1 of 24 Pages )
International Conference on Islamic Banking: Risk Management, Regulation and Supervision - 2003
1.0
Introduction
Liquidity management is part of the larger risk management framework of the financial services industry, which concerns all financial institutions whether they are conventional or Islamic. Studying liquidity management issues is a critical but complex subject. Failure to address the issue may lead to dire consequences, including banking collapse, and by extension, the stability of the financial system. In fact, most bank failures are due to difficulties managing their liquidity problems.1 This is also the reason why regulators are very concerned with the liquidity position of financial institutions and current thinking of regulators centre around the strengthening of liquidity framework.
For Islamic financial institutions, liquidity management is more unique due to the fact that most available conventional instruments used for liquidity management are interestbased, therefore, not sharia‟a compatible. It follows, then, that in the absence of shariah compatible instruments, there can only be limited development of the Islamic interbank money market. The money market is an important component of the liquidity management framework as it is the first avenue to place or borrow short term funds. This gives more reason why addressing liquidity management is very critical to Islamic banks since IFI faces bigger challenges due to sharia‟a considerations and the nature of their operations.
1
Mark Largan Banking