Islamic Liquidity Management: The Way Forward

Even though very small compared with conventional finance, there has been significant growth in Islamic financial services during recent years. It is not surprising that this growth is forecast to continue at a rapid pace. Clearly, there is an expanding demand for these products, and a closely associated desire on the part of banks, including non-Islamic banks, to provide Islamic financial services. As the interest in the subject of Islamic finance increases, there appears the need for innovative and competitive Islamic products which are Sharia-compliant. On the other hand, the development of Islamic finance faces challenging issues. Liquidity management of Islamic financial institutions has been one of the most challenging and discussed issues with regard to the trend outlines above. Especially the short term-liquidity management issue is very problematic for these institutions since it is very hard to find globally accepted, Shariacompliant, liquid short term instruments that may be used in liquidity management. Recently, there have been attempts to provide these kind of instruments with no (little?) success being recorded as of date. The Islamic financial industry waits in eager anticipation for a solution to the problem that may present a way out of the current empasse

Keywords:

Islamic finance, islamic liquidity management IILM,

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