Abstract
Islamic finance is theoretically said to be leading to socioeconomic inclusion, balanced development of human societies and economies by the dint of its established strengths of ban on interest, avoidance from gharar, short selling and speculation, financing of certain economic sectors, and its profit and loss sharing and asset-backing principles. However, its growth is hampered by the shortage of liquidity management (LM) tools. Although liquidity shortage is a genuine concern for Islamic banks, excess liquidity has been the hallmark rendering liquidity management a case of profit maximization even where it leads to the compromise on Shariah principles and becoming a conduit for transfer of liquidity to the interest-based system. This chapter analyzes such products/practices and suggests policy changes for the evolvement of a real, stable, and sustainable Islamic system of finance—a means for achieving the SDGs with focus on fair and just distribution of benefits of sustainable growth.
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Notes
- 1.
- 2.
Vision in Action (ViA) Advisory Group, Report on Christian-Muslim Interfaith Dialogue on “Engaging Structural Greed Today” in Kota Kinabalu, Sabah, Malaysia; September 25–30, 2011.
- 3.
The then CEO, HSBC Amanah; Liquidity Management of Islamic Financial Institutions in the UAE, December 10, 2005.
- 4.
Banks pay a very low profit to remunerative C/As, the category introduced recently to circumvent the prohibition of paying any return/hibah to C/A holders depositing money as a loan, but to offer them various benefits to allure cheap money.
- 5.
Blockchain system first emerged to facilitate digital currencies like Bitcoin. It involves a shared electronic ledger that allows all parties to track information through a secure network, removing the need for third-party verification.
- 6.
http://www.brecorder.com/2017/03/09/338790/guidelines-for-pmex-commodity-murabaha-approved/. No further detail has been shared about the structure and process flow of the product.
- 7.
It has already happened that the premier bank in Pakistan pioneered the excessive use of clean and collateralized tawarruq and then ‘Running Musharaka’ as replica of conventional OD, obliging the other IBIs in the country to be involved in such prohibited practices, maybe on the basis of ‘Maslahah’ or ‘Umum Balwa’ (‘a common plight’ or ‘fasad al zaman’) principle as adopted by the Shari‘ah boards of the Securities Commission and that of BNM, Malaysia, in order to escape from the losses/harm from bad practices that prevailed in the society/economy.
- 8.
M. Akram Laldin, ED, ISRA, Malaysia; see https://fb.com/EthisCrowd/videos/1094018484035944.
- 9.
- 10.
Islamic Bankers : Resource Centre Nov. 2016; https://islamicbankers.me/2016/11/16/deposit-paradigm-shift/; also see https://www.iaplatform.com/.
- 11.
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Appendix
Appendix
Process flow—interbank bai muajjal of sukuk (organized tawarruq) in Pakistan. (Source: Author’s own)
Structured flow of secured commodity murabaha
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Ayub, M. (2020). Making Islamic Finance a Vehicle for Social Inclusion: A Case for Revisiting the Liquidity Management Practices by Islamic Banks. In: Elzahi Saaid Ali, A., Ali, K., Khaleequzzaman, M. (eds) Enhancing Financial Inclusion through Islamic Finance, Volume I. Palgrave Studies in Islamic Banking, Finance, and Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-39935-1_7
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