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Islamic Liquidity Management by Warren Edwardes

Learn about Islamic liquidity management in the Islamic Funds World conference by Warren Edwardes, CEO of Delphi Risk Management Limited. Discover insights on liquidity, asset/liability gap management, and the challenges faced in the financial industry. Access the full speech and PowerPoint presentation on their website. Find out about the importance of liquidity in the Islamic banking world and its impact on financial instruments like Sukuks. Explore the need for a liquid secondary market and the demand for short-term instruments. Dive into discussions on Shari’ah compliance, the inter-bank market, and the future of Islamic financial instruments.

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Islamic Liquidity Management by Warren Edwardes

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  1. Islamic Liquidity • Islamic Funds World conference, London • 7-8 October 2003 • Warren Edwardes, ceo, Delphi Risk Management Limited • e: we@dc3.co.uk • w: dc3.co.uk Warren Edwardes

  2. They have been looking for this • A weapon of Maths Instruction Warren Edwardes

  3. Delphi’s website contains: • articles on Islamic banking on:dc3.co.uk/islamicbanking • The full speech will be on: • dc3.co.uk/islamicliquidity031008.pdf • with PowerPoint on • dc3.co.uk/islamicliquidity031008.ppt Warren Edwardes

  4. thoughts on liquidity • More than listing • Is there a buyer when you are a seller? • More than negotiable • At what price? Warren Edwardes

  5. thoughts on liquidity • British Gas • Falklands War • Dumping of Aaa A1-P1+CP • Don’t hold paper in the news Warren Edwardes

  6. thoughts on liquidity • Midland Bank • Crocker bank led to dumping of Midland CDs • Don’t hold paper in the news Warren Edwardes

  7. thoughts on liquidity • Continental Illinois • Plenty of “liquid” assets • No diversification of liabilities • mainly wholesale and few retail customers Warren Edwardes

  8. thoughts on liquidity • Access to determinate amount of cash • When you need it • Preservation of capital on demand • Free from price risk • Undoubted quality low credit risk and be seen to be so • Need a quality overnight instrument with stable capital values Warren Edwardes

  9. Background to Islamic liquidity • MEED quotation • Written in December 1997 Warren Edwardes

  10. Background to Islamic liquidity • Asset/liability gap management • Shortage of instruments • LMC /IIFM initiatives • Malaysia, Bahrain & IDB Sukuks • Liquidity and price transparency is required for an active secondary market • Issues oversubscribed but minimal trading • This lack of liquidity paradoxically increases the demand for liquidity Warren Edwardes

  11. liquidity management • Investments long dated – deposits are short • massive gap • Massive liquidity problem • Need flexibility with Shari’ah compliance • Sukuks held to maturity • Short selling? • Stock borrowing? Warren Edwardes

  12. liquidity management • LME Murabaha is main destination • Bilateral transactions • Counterparty limits • Some funds exist • But not capable of market size transactions • Segmentation inevitable • Co-operation needed with a market level solution Warren Edwardes

  13. No Inter-bank market • Balance sheet management problem • Cannot easily finance when there are withdrawals • So more liquidity than needed by a conventional bank • Bilateral Murabaha with break clauses is widespread • liquidity vehicles cannot withstand a $100 injection or withdrawal Warren Edwardes

  14. Conclusion & summary • Sukuks bought to hold • minimal secondary market for on sale • Mark to market and price determination is difficult • Shortage of paper • Is debt trading really Hallal? • Novation agreements • Cancellation of original purchase and replacement with new owner in contract note Warren Edwardes

  15. Conclusion & summary • Asset / Liability problem • Long term asset fixed and short term variable deposits • No derivatives – yet! • Financial Takaful? Warren Edwardes

  16. Conclusion & summary • Lack of short term instruments • Sukuks are medium plus term • Not price stable or really liquid • Shortage of credit lines • Wanted a market-sized, liquid, inter-bank market solution where institutions can park their reserves Warren Edwardes

  17. They have been looking for this • A weapon of Maths Instruction Warren Edwardes

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