Dear IFN Readers,
At the start of 2023, the International Monetary Fund (IMF)’s managing director, Kristalina Georgieva, warned that the new year is going to be “tougher than the year we leave behind”, with a third of the world economy expected to be in recession. After facing a challenging 2022, where the markets dealt with high levels of inflation and the impact of the US Federal Reserve’s tightening monetary policy, the IMF believes that the global economy will see a tough year ahead as the main engines of global growth – the US, Europe, and China – are seeing their economic activities slowing down.
Just as the first quarter of the year came to a close, we have witnessed a spiral of banking crisis stretching across the US and Europe that rattled the global financial system. The complete and utter collapse of Silicon Valley Bank and Signature Bank in the US sent shockwaves across the global markets, and we then saw the unexpected downfall of the 167-year old Swiss financial institution Credit Suisse, raising alarm regarding the stability of the global banking industry among market participants.
The Islamic finance industry is not sparred from the global headwinds, and if anything, we are expected to be more innovative and take the bull by its horns to lead by example in resolving the pressing issues facing us. If history serves as a reminder, the Islamic finance industry navigated the 2008 financial crisis well and its Shariah compliant framework and risk-based approach sparred most Islamic financial institutions from a similar meltdown that saw giant players disintegrate and pack up their business.
While 2022 was a year faced with high inflation and sustained geopolitical risks, the IILM navigated global risks well and succeeded in achieving several key milestones, namely the issuance of its inaugural 12-month Sukuk as well as receiving the second international program rating from Fitch Ratings. The IILM has consistently offered three different short-term Sukuk tenors every month, namely one-month, three-month and six-month over the last few years, with the most recent 12-month offering in 2022 complementing its yield curve and thus fulfilling the organization’s mandate of providing a wide range of Shariah compliant liquidity management instruments to the market.
Despite last year’s challenging market conditions, the IILM supplied an excess of US$13.88 billion across 37 Sukuk series through four different tenors and accounted for 39% of the total global US dollar Sukuk issuances in 2022. The secondary market volume, meanwhile, reached US$2.2 billion, the highest volume since inception, representing circa 16% of the total issuance last year. The IILM’s Sukuk issuance this year up to May stood at US$$4.35 billion, accounting for 26% of the total volume of US dollar Sukuk issued globally.
While we remain mindful of the multiple uncertainties that the future brings, the IILM looks forward to further increasing the resilience of the Islamic finance ecosystem, as it explores new developments of its issuance program to address investors’ needs and enhance the accessibility to its high-quality and short term Sukuk.
Given the IILM’s establishment further to the global financial crisis and looking back at the volatility experienced during the recent COVID-19 pandemic, there is no shortage of risk across the financial landscape, with the expectation of further disruption in the future. The IILM will continue to build on its track record and work with its partners and stakeholders to enhance and strengthen the Islamic liquidity management framework.
Dr Umar Oseni
CEO
International Islamic Liquidity Management Corporation