Doha: The COVID-19 pandemic should be a catalyst for much needed progress in the development of Islamic financial markets globally. At the peak of the pandemic, the International Islamic Liquidity Management Corporation (IILM) increased its sukuk program size to $4bn and raised the total volume of its monthly issuances. It also adjusted some tenors to fit the investors’ needs for liquid instruments, said an expert.
HBKU recently organised a webinar on ‘The COVID-19 Pandemic and Cross-border Islamic Liquidity Management’. The experts discussed the immediate intervention of regulatory and supervisory authorities to mitigate the liquidity stress faced by the banks.
Dr. Umar A Oseni (pictured), Chief Executive Officer, IILM said, “The IILM position in the market has grown as it is among the top ten sukuk issuers by amount issued in 2020. The total sukuk issuance for the first quarter 2021 was $6bn. The IILM sukuk addresses the demand from Islamic banks and are mainly purchased by Islamic investors and according to IILM data, banks constituent of 79.2 percent of the investors, including 73 percent Islamic banks.
“The milestone we achieved in 2020 whereby we increased the program size from $3bn to $4bn was driven by the increasing demand from the market for a high-quality money marketing instrument. The relevance of a credible Islamic instrument was emphasized during the pandemic and the banks in Qatar were very supportive. The COVID-19 pandemic should serve as a wakeup call and should be a catalyst for much needed progress in the development of Islamic financial markets globally,” he added.
Dr. Umar focused on the Islamic market as IILM being the only the international infrastructure institution providing cross border liquidity management that is Shariah compliant in nature. The presentation shed light on achievements of IILM and how the institution has developed significantly since its inception and has an impact on Islamic financial industry.
He said, “The IILM aims to enhance cross border investment flows, international linkages and financial stability by creating more liquid Shariah compliant financial instruments for institutions offering Islamic financial services (IIFS). The primary objective of this institution is to facilitate cross-border liquidity management among the institutions offering Islamic financial services (IIFS) by making available a variety of Shariah-compliant instruments, on commercial terms, to suit the varying liquidity needs of the institutions offering IIFS.”
Highlighting the actions taken by Kuala Lumpur based IILM during the COVID-19 crisis in 2020, Dr. Umar said, “We increased the program size to $4bn which was the highest program size since inception, we funded two new assets with total of $1.55bn to tackle impact of COVID-19, we increased the total volume of monthly issuances by 80 percent from $1.96bn to $3.51bn to meet the market needs for high quality Islamic instrument during the pandemic year, we made adjustments to sukuk tenors to fit the investors need and we also increased the tradability ratio to 79 percent for Shariah acceptance of the paper.”
Since the inaugural issuance in 2013 we have issued 137 sukuk to claim about $66bn today and the current outstanding volume has stabilized at $3.51bn since last year and increased the program size to $4bn at the peak of the pandemic because the demand increased, and we needed to provide more to the market.
The IILM Sukuk has become a solution for cross-border Islamic Liquidity Management and has been formed to address a basic liquidity management problem that has been considered at length by regulators. It managed to establish a money-market sovereign-backed sukuk issuance programmed with the characteristics such as, safe-haven Islamic liquidity management instrument during market turbulence, high credit quality backed by a pool of sovereign obligations originated by the IILM, tradable and supported by a robust primary and secondary market infrastructure, appropriate regulatory treatment, widely acceptable under Shariah principles, denominated in US dollar for cross-border trading.
The IILM’S role is now complementary to the role of its central bank members and has achieved its principal objectives. Over time, IILM is expected to increase its importance to the Islamic financial system.
