Year
2012
Country
Qatar
Language
English
Abstract
| Managing liquidity is a fundamental component of sound management in all financial institutions. However liquidity management might face some constrains, Islamic banks in particular face challenges derived mainly by the main Shari"ah principles on Islamic finance, limited Shari"ah compliant interbank instrument, and in many jurisdictions, the lack of Shari'ah compliant financier of last resort facility. This research analyzes the issue of liquidity management in Islamic banks in atar with a special focus on the third challenge. The importance of a financier of last resort facility is derived from the fact that it is not only a liquidity management instrument for banks; rather it is a tool to help the financier of last resort fulfilling its functions to reach its ultimate objectives. Currently, the size of Islamic banks reached around 23% of the banking sector in Qatar, yet Qatar central bank has not developed a Shari ah compliant financier of last resort. In order to develop a suitable financier of last resort facility for Oatar central bank, instruments offered by various central banks were surveyed and analyzed. Lessons drawn from the analysis include that Islamization of conventional instruments may lead to transactions that violate Shari"ah principles. In addition, due to the limited availability of central bank's assets, there is a need for a long-term coordination between the central bank and the government to develop a successful program of Sukuk issuance. The paper proposes three instruments, which are designed in complience with Shariah principles while serving as financier of last resort facilities. The first proposed instrument is short-term mudarabah deposit. Taking into consideration that Riba may be involved when principal, and or the rate of return are guaranteed the instrument is designed in a way that prevents such violation of Shari'ah principles. The second instrument is discounting Islamic banks' financial lease at the central bank. The choice of financial lease ensures that the discounted asset is tradable and do not involve the sale of debt. And the third instrument is open market operations utilizing tradable Sukuk. To develop sufficient volume of Sukuk, the central bank may coordinate with different government entities, in particular the concerned parties to develop targeted projects which support the Qatar national development strategy 2011-2016. These three instruments are also suitable for interbank transactions. Nonetheless, the third instrument can be also considered as a financing instrument for government expenditure as well as an instrument to sterilize the momentary effects of the expansionary fiscal policy. Recommendation addressed to Qatar central bank emphasize on setting a strategic plan to enhance Islamic finance, and adopting Shariah compliant financier of last resort facility to enhance the infrastructure of Islamic finance. High level coordination between the central bank and government entities is a pre-requisite to start a program of Sukuk issuance, which can be utilized in the open market operations. In addition, it is essential to conduct forecast for the short-term and long term potential liquidity level in order to determine the required value ofsecurities in the open market operations. |
English
No. of Pages
110p.
Degree
M.Sc
Select type of work
Institution
CIS Program Old
CIS publications
No
CIS Thesis
Yes
CIS Library Call Number
Thesis QFIS IF 2012/3