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Country reportsNovember 1 2013

The Islamic liquidity management quest

While the debut issuance of a $490m sukuk in August was a significant milestone for Islamic finance, it will barely dent the industry’s short-term liquidity management issues, which are hampering growth.
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The Islamic finance industry has made great strides since the onset of the global financial crisis. Assets have passed the $1000bn mark, profits have risen sharply and the industry has been feted for pushing into new markets and sectors. Yet it continues to be dogged by one recurring question: when will it address the short-term liquidity management of Islamic financial institutions on a global basis?

To date, the industry’s expansion has been noticeably hampered by a shortage of highly liquid, investment-grade financial instruments that Islamic banks can trade to manage their short-term funding needs. So the long-awaited debut $490m sukuk issuance in August 2013 by Malaysia International Islamic Liquidity Management (IILM) Corporation – a body backed by central banks from the Middle East and Asia – marked a significant milestone, while setting several records in the process.

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