The issue of liquidity management remains a formidable challenge for Islamic banking institutions, compounded by several factors such as minimal Shari'ah compliant avenues to seek funds or deploy surplus liquidity, developing stage of Islamic interbank markets and lender of last resort support by the central banks.
These multifaceted challenges necessitate innovative approaches and robust risk management frameworks to ensure the resilience and stability of Islamic banking institutions in managing their liquidity effectively.
To overcome these challenges and to facilitate its monetary operations, CBO has been developing several tools and solutions for Islamic liquidity management, which are compatible with the legal and regulatory framework of Islamic banking in Oman. To develop these liquidity management instruments, CBO has worked closely with its High Shari'a Supervisory Authority (HSSA), which has reviewed and approved all the product structures and relevant contracts.
In December 2022, CBO introduced Wakala Money Market instrument to support an effective management of liquidity by Islamic banks and Islamic banking windows in the Sultanate of Oman. Under this product, Islamic banking entities can make a placement with the CBO in U.S. Dollar (USD) for a minimum duration of one day to maximum of three months. These sums are maintained in a Fund managed and invested by the CBO in Shari'ah compliant instruments.
Going forward, CBO plans to gradually launch a suite of Shariah-compliant instruments to absorb excess liquidity in Islamic banking market and meet the liquidity needs of Islamic Banks and Windows. These products include, among others, Wakala Money Market, (OMR) Islamic certificates of deposit (CDs), Islamic treasury bills (T-bills), Ijarah Sukuk, and restricted Mudaraba accounts. Notably, Qard Hassan-based liquidity product will be introduced for intraday financing.
Read:
Circular
on Introducing Wakala Money Market Instrument
Attachment to Circular on Wakala Money Market Instrument