Islamic finance in Europe (118)

Continuation

Typically, liquidity risk can occur under two scenarios.

In the first, due to a lack of iquidity, the IIFS (Institutions Offering Islamic Financial Services) is constrained in its ability to meet:

-      liabilities

-      and financial obligations

by illiquid assets.

In the second, the IIFS is unable to:

-      borrow

-      or raise

funds at a reasonable cost when required.

Therefore, it is paramount to ensure that sufficient Shari’ah-compatible:

-      money market instruments

-      and interbank facilities

are available to support IIFSs in their liquidity risk management.

From the research paper of European Central Bank

(Authors: F.Mauro, P.Caristi, S.Couderc, A.D.Maria, L.Ho, B.K.Grewal, S.Masciantonio, S. Ongena and S.Zaher)