Islamic Liquidity Management Alternatives by Ali Ahmed Sidd

Top 20 FREQUENT WORDS

pool 45 islamic 43 funds 24 commodity 18 liquidity 18 pools 18 profit 18 assets 17 management 17 asset 16 musharakah 14 presen 13 ratio 13 shariah 12 based 11 investment 11 mudarabah 11 mbl 10 murabaha 10 transaction 9

DOCUMENT KEY POINTS

presenmanagement islamic liquidity islamic liquidity management has two sides a c placement of excess funds a c matching the short falls short term liquidity needs the challenge becomes even greater for ifis because unlike conventional banks the same alternative mode may not work for both situations
due to the following limitations a c absence of an islamic inter bank market a c lack of shariah compliant alternatives both at inter bank and central bank level

� inter bank musharakah mudarabah based pools � islamic placement accounts � commodity murabaha transactions � trading hedging for currencies � equity market islamic mutual funds presen investment in sukuk a c islamic bonds commonly known as sukuk can be very effective in managing liquidity in islamic banks and meeting slr requirements
a c trade of such securities is permissible as this will be tantamount to the sale purchase of holder s proportionate share in the assets which is allowed in shariah

pools are specific investment pools comprising of financing assets like murabaha ijarah etc ideally tangible assets created to meet the short term liquidity requirements of the bank
a c funds from financial institutions fis are accepted under musharakah or mudarabah structure in these pools

parameters � the fi pool will comprise of financing asset s transferred from the other asset pool of the bank or new assets will be booked for the pool
pools in the creation of specific fi pools following parameters are taken care based on the nature of mode tenure of the fund acceptance

pool management the inter bank acceptance of funds based on musharakah or mudarabah has been successfully practiced at meezan bank with other islamic conventional financial institute in the market however this requires an effective asset pool management system at the ifi
pools are given a unique pool identification number pin at the time of pool creation a c this pin is used for asset allocation deal confirmation and other related accounting purpose

pool management transfer and return of assets from the pool a c at the time of pool creation proper transfer of assets is recorded a c when an asset is transferred to the fi pool it is recorded through an entry and a transfer voucher is generated

a c islamic bank can set any profit sharing ratio keeping in mind the desired rate of return of the investor fi however in case of musharakah the profit sharing ratio of the sleeping partner the fi cannot be greater than the ratio of its investment share in the pool
pool management income calculation of the fi pool a c income generated by the assets is assigned accordingly to its related f

profit distribution a c profit is distributed at the time of maturity of the fi pool as per the agreed upon profit sharing ratio
is recorded by a deal confirmation agreement a mudarabah or musharakah agreement a c the deal confirmation explicitly mentions mode under which the funds are being accepted in the f

profit ratios pool investment profit ratio abc bank sleeping partner mn mbl working partner mn total mn profit distribution at maturity a after days income of the pool k abc bank share k x k or p
pool size mn tenor days expected return on asset from the pool p

notice for m deposit profit disbursed on a monthly basis profit calculated on daily product basis commodity murabaha in pkr fcy
deposits invested under a mudarabah arrangement minimum investment amountpkr or multiples thereof maximum investment amount a pkr billion withdrawals of funds hrs

commodity presen murabaha sell at a profit deferred payment buy broker broker a b agent a a pay spot receive sales proceeds at maturity receive funds from investor to pay broker a a settle investor sales proceeds less agents fees islamic bank principal funds flow commodity flow credit for the diagram iifm
a c the islamic bank purchases a commodity such as base metals listed on the major commodity exchanges such as london metal exchange a c the purchases are made on spot basis from commodity broker against cash consideration

abc sell commodity to buyer d buyer d key points agent b c cannot be same agent c buyer d cannot be same

a c islamic bank cannot enter into a forward sale purchase agreement however they can enter into a promise to sell purchase agreement in order to sell purchase foreign currencies in future
forward cover currency hedging presen trading foreign currency a c forward cover plays a very important role in facilitating imports and exports

forward transaction if the deal date maturity dates are different then the transaction will be considered as forward as per the rules of shariah even though the market convention defines spot transaction in range of days under t system
fx transactions a c hence all fx transactions that are not a ready can only be done on the basis of unilateral promise to sell buy

equity islamic funds islamic funds equity presen equity market islamic funds also provides alternative channel for managing liquidity for islamic banks
however in trading of share the islamic banks needs to follow the approved screening criteria for shares as well as avoid gharar speculation

islamic funds equity presen key screening factors meezan islamic index criteria a c nature of business a halal permissible ratios a c interest based debt to asset ratio a c illiquid to total assets at least a c non shariah compliant investment a c non shariah compliant income a c net liquid asset per share share price islamic funds equity presen other avenues for liquidity management in equity markets a c islamic alternative for ready future based on two separate sale transactions
another possible options could be islamic alternative for margin cfs however the concept needs more research and also support from kse secp as few changes may be required to make shariah compliant alternative viable

presen conclusion a c ifis needs to work together for new solutions and share success stories a c more room for innovation
a c treasury department of islamic banks needs to think differently from conventional treasury dept

Please note, This is an auto generated summary based on sentances position in the document and other factors

DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\sukuk islamic

KeyWords

sukuk islam asset finance issu certifi financi contract bankable bond ijarah leas structur profit holder rate developed purchase risk investor

DOCUMENT REFERENCES

Number of Pages

20

Published Date

2007-01-31 16:04:42

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Islamic Liquidity Management Alternatives by Ali Ahmed Sidd

Contents

Top 20 FREQUENT WORDS

DOCUMENT KEY POINTS

DOCUMENT WORD ANALYSIS

Main Category

KeyWords

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DOCUMENT REFERENCES

Number of Pages

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