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The Need for Short Term Islamic Liquidity Management Instruments

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It is important for Islamic banks to have sufficient funds to deal with its obligations or commitments that may also affect its capability to attract deposits. Like conventional banks, even for Islamic banks, there should be a proper mechanism put in place to match the maturity of assets and liabilities daily while managing with any short-term pressures that may trigger in the course of assuring the assets are fully funded. Unlike conventional banks, Islamic banks in some jurisdictions does not have Islamic short-term liquidity management instruments available in the domestic market as the only available financial instruments are conventional financial instruments tainted with riba. This means that the money market instruments including the interbank market financial instruments and the Central banks acting as lender of last resort in those jurisdictions are typically designed with a loan transaction with interest which is fully prohibited in Islamic finance.

 Liquidity Issues Faced by Islamic Banks

Due to lack of availability of Islamic liquidity management instruments in the domestic market, Islamic banks may face and deal with excess liquidity. This is a situation where the liquid assets of the Islamic banks are either producing a very low return or no return at all threatening the business sustainability of the Islamic banks adversely affecting the competitiveness of the Islamic banks compared to conventional banks. Like conventional banks, Islamic banks are required to follow capital adequacy requirements under Basel norms. For instance, even the Islamic banks under Basel III are supposed to increase the amount of high-quality liquid assets (HQLAs) they hold to ensure that they have the ability to meet the liquidity coverage ratio (LCR). In this regard, the main obstacle which the Islamic banks face is not having enough supply of HQLAs. The undeniable truth is that since the inception of Islamic banking, Islamic liquidity management is a challenge and even today, only limited instruments are available in some selected jurisdictions. The most popular type of investment used by Islamic banks to address the problem of liquidity is commodity Murabahah which is a form of a short-term finance based on Tawarruq. However, the latest practices of the countries prove that there are innovate solutions used in product structuring to manage liquidity.

Differences between Conventional and Islamic Short-Term Liquidity Management Instruments

The main difference between conventional and Islamic short-term Islamic liquidity management instruments is that in Islamic short-term liquidity management instruments, there is no involvement of riba. This means that there is no loan relationship created with interest payment obligation in Islamic short-term liquidity management instruments as there is always an underlying asset or a real economic activity that derives halal profit in the mechanism. To structure an Islamic short-term liquidity management instrument, the shariah contracts are used. For instance, in 2001, the government of Bahrain introduced short-term Al-salam Sukuk to provide investment opportunities for banks and to facilitate monetary policy activity by the Central Bank paving way for Islamic banks to engage in monetary operations. How this Al-salaam Sukuk works is that the government agrees to sell forward to Islamic banks a commodity, typically aluminum in the case of Bahrain, against a spot payment. Instantaneously, the Islamic banks appoint the Bahraini government as their agent to sell the commodity to a third party upon delivery. The price of the future sale determines the return of the Sukuk, and the initial spot payment from the Islamic banks to the Central Bank is considered as the liquidity withdrawal.

 Conclusion

To manage the liquidity of Islamic banks, short term Islamic liquidity management instruments play a vital role. As such, for the sustainable development of Islamic banking, it is imperative to have innovative short-term Islamic liquidity management instruments offered in the domestic market. In this regard, the regulatory authority of Islamic banks could play a vital role to establish a vibrant and resilient Islamic money market parallel to the conventional money market. This is a real challenge faced by the Islamic banking industry of Maldives as well. In 2011, when Maldives Islamic Bank, the only full-fledged Islamic bank was opened in the country, the most critical challenge it faced was to find adequate Islamic liquidity management

instrument in the money market and the capital market and this issue has been highlighted by the Chairman of board of the bank in the bank’s Annual Report 2011 (p.11) as follows:

The bank has gradually deployed the funds towards providing Shariah-compliant financing to its customers under the concept of Istisna’, Murabahah and Ijarah. I wish to highlight, however, that a significant portion of the deposits has to be placed in a nonearning account with the Maldives Monetary Authority due to the absence of Shariah compliant money market and capital market instruments locally to invest in. Finding a viable and acceptable avenue to invest our surplus funds is one of the biggest challenges we face, not only for generating income but also equally important for liquidity management.

Dr. Aishath Muneeza is an Associate Professor at the International Center for Education in Islamic Finance. 

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Next year September census will be taken.

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Maldives Bureau of Statistics has announced that the national census will be taken next year, from September 17th to September 30th, 2022.

In a news conference held by the Bureau of Statistics, Minister of National planning, housing, and infrastructure Mohamed Aslam stated in a video message that it is mandatory to get a national census as that information is critical in planning development strategies in the Maldives. The information collected from the public will be used to make plans for islands and atolls.

According to the information given by Chief Statistician Aishath Hassan, up to date, there are no data of an economic census being taken. With the statistics collected from the economic census, Aishath Hassan stated that it will be easier to calculate the GDP of Maldives. With an economic census taken, data such as the type of work done in different parts of Maldives, the size of business, the number of persons who are working in such business will be taken.

For next year’s census data collection fieldwork, 4300 enumerators will be needed. Which is 2200 persons to work in islands and 2100 persons to work in Male’ city area. Next month, enumerator jobs will be announced.

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Afghan farmers welcome harvest season of onions

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Afghan farmers in northern Balkh province welcome the harvest season of onions.

Afghan farmers harvest onions at a field in Sholgara district of Balkh province, Afghanistan, Sept. 20, 2021. (Photo by Kawa Basharat/Xinhua)

 

Afghan farmers harvest onions at a field in Sholgara district of Balkh province, Afghanistan, Sept. 20, 2021. (Photo by Kawa Basharat/Xinhua)

 

Afghan farmers harvest onions at a field in Sholgara district of Balkh province, Afghanistan, Sept. 20, 2021. (Photo by Kawa Basharat/Xinhua)

 

An Afghan farmer carries a package of harvested onions at a field in Sholgara district of Balkh province, Afghanistan, Sept. 20, 2021. (Photo by Kawa Basharat/Xinhua)

 

Photo taken on Sept. 20, 2021 shows packages of harvested onions in Sholgara district of Balkh province, Afghanistan. (Photo by Kawa Basharat/Xinhua)

 

An Afghan farmer harvests onions at a field in Sholgara district of Balkh province, Afghanistan, Sept. 20, 2021. (Photo by Kawa Basharat/Xinhua)

 

An Afghan farmer shows harvested onions at a field in Sholgara district of Balkh province, Afghanistan, Sept. 20, 2021. (Photo by Kawa Basharat/Xinhua)

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Declaration presented to Parliament requesting shore protection in an eroding area at Felidhoo

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A declaration has been presented to the Parliament advocating the deployment of coast protection measures in V. Felidhoo’s eroding region.

Felidhoo MP Fazul Rasheed presented the declaration at today’s parliamentary session, citing that the area has been deteriorating at an unusually fast rate and urging the government to accelerate the execution of coast safeguards in the vicinity.

Whilst speaking on the declaration, Fazul stated that while the extreme erosion of the region has caused numerous issues for the island’s population, it has also had a substantial negative influence on the ecology. He went on to say that the erosion had damaged the island’s hospital as well as several of the houses.

Fazul went on to say that while the installation of shore fortification at the eroding at Felidhoo was specified in this year’s PSIP budget, no work has been done on it, not even a reconnaissance of the eroding area.

“Without a comprehensive solution to the problem, erosion will continue. The hospital and school’s walls have nearly collapsed due to erosion. Residents of Felidhoo are in a precarious situation,” he added.

Fazul further stated that, despite the fact that Felidhoo is an island that practices local tourism, the beach designated for tourists has been entirely degraded.

He also stated that the island’s extreme erosion has had an influence on the mental health of the Felidhoo locals.

 

Source: Xinhua News Agency

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