The International Islamic Liquidity Management Corporation (IILM) has been the talk of the Islamic finance industry when it was launched on the 25th October 2010 in terms of what it can bring to the table to address the critical issue of liquidity management in the industry. As months of silence passed, the more pressing question evolved as to whether the IILM will see the light of day.
An explanation was finally provided in the last session of the Investors Day of the IFN 2011 Issuers & Investors Asia Forum. The session titled: “Islamic Liquidity Management Development and Tools” saw the panelist Hooman Sabeti Rahmati, a partner at Allen & Overy questioned on the latest development of the corporation since its launch.
Hooman, who revealed that he was advising the IILM, said the problems faced by the corporation were of ‘exceeding complexity.’ He then provided an insight into the laborious task faced by the IILM.
“The central problem is in designing a liquidity product,” he explained, adding that several requirements needed to be approved not just by a single member, but by all members of the IILM. The requirements include a high credit rating, tradable instrument, reserve currencies, appropriate regulatory treatment which are afforded by the central banks and the prudential regulator.
Hooman added that the magnitude of complexity involved was completely different of that faced by international organizations or even Sukuk issuers, as the IILM members comprise of central banks.
“There is a clean balance sheet with no assets to back the liabilities that you need to have preferential regulatory treatment in all sorts of jurisdictions to make it work and the Shariah problems that have been impediments in creating the right instrument are still being solved. It is a multi-headed monster of a problem but it is being worked on,” he said.
The IILM was established with 14 founding shareholders (consisting of 12 central banks or monetary authorities of Indonesia, Iran, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Saudi Arabia, Sudan, Turkey, and the UAE) and two multi-lateral institutions, the IDB and the Islamic Corporation for the Development of the Private Sector.
Panelists Dr Ali Al Amari, the senior director of supervision and authorization division at the Qatar Financial Centre Regulatory Authority and Emad Al Monayea, the vice-chairman, managing director and CEO of Liquidity Management House, both questioned the absence of the IILM in engaging with the financial institutions.
In an attempt to engage the delegates, Emad also questioned the reason behind the IILM limiting its membership to regulators. “Why do we not see any practitioners and bankers being nominated as members of the IILM? The IILM is currently at the stage where it would require research and development as well understanding and contribution,” he added.
In another session, Neil Miller, the global head of Islamic finance at KPMG, highlighted that standardization was more than just aligning contracts and the focus should instead be given to create a more efficient industry. He praised the work of the International Islamic Financial Market (IIFM) as it brought people together to be involved in various attempts to standardize products.
However, Miller lamented the approach of pure Islamic banks which were less enthusiastic than conventional banks with Islamic windows. He said that there must be a move towards efficiency through standardization and increased transparency, but it was for the Islamic finance industry to drive itself and not look to the international bodies in the conventional banking space to lead. “We are going in the right direction but need to work harder,” Miller commented.
Badlisyah Abdul Gani, the CEO and executive director of CIMB Islamic, said that the ‘Arab spring’ brought a lot of opportunities for Asia with significant inflows predominantly in the private banking space within the various markets in Southeast and North Asia.
“Investors are typically looking for security and stability to mitigate the experience back home,” he said adding that Asia was the place to be in terms of economic activities such infrastructure, oil and gas as well as the property sector. — RW