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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. They have been looking for this A weapon of Maths Instruction. Delphi’s website contains :.
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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
They have been looking for this • A weapon of Maths Instruction Warren Edwardes
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
thoughts on liquidity • More than listing • Is there a buyer when you are a seller? • More than negotiable • At what price? Warren Edwardes
thoughts on liquidity • British Gas • Falklands War • Dumping of Aaa A1-P1+CP • Don’t hold paper in the news Warren Edwardes
thoughts on liquidity • Midland Bank • Crocker bank led to dumping of Midland CDs • Don’t hold paper in the news Warren Edwardes
thoughts on liquidity • Continental Illinois • Plenty of “liquid” assets • No diversification of liabilities • mainly wholesale and few retail customers Warren Edwardes
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
Background to Islamic liquidity • MEED quotation • Written in December 1997 Warren Edwardes
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
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
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
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
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
Conclusion & summary • Asset / Liability problem • Long term asset fixed and short term variable deposits • No derivatives – yet! • Financial Takaful? Warren Edwardes
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
They have been looking for this • A weapon of Maths Instruction Warren Edwardes