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The IFSB Council Adopts Technical Note 5 (TN-5) on Sharīʻah-compliant Liquidity Risk Management Tools

Date posted: 16 August 2023

16 August 2023, Riyadh, Saudi Arabia – The Council of the Islamic Financial Services Board (IFSB) has adopted a new Technical Note during its 42^nd Meeting held on 16 August 2023 hosted by the Saudi Central Bank (SAMA) as the Chairman of the IFSB Council 2023.

The IFSB Council adopted the new Technical Note (TN-5). The aim of TN-5 on Sharīʻah-compliant Liquidity Risk Management Tools is to provide guidance on the Sharīʻah-compliant liquidity risk management tools available to Institutions offering Islamic Financial Services (IIFS) and operationalisation of the instruments, bearing in mind practical reality and compliance with the tenets of Sharī`ah rules and principles.  Managing liquidity risk can be especially challenging for Islamic banks because they are not able to hold interest-bearing deposits with other financial institutions or interest-bearing high-quality liquid assets (HQLA) and cannot borrow through the conventional interbank market. They also cannot utilise interest-based central bank lending and deposit facilities. To address these challenges, the new TN provides guidance on various Sharīʻah-compliant liquidity risk management tools that may be used by IIFS to manage liquidity risk on either side of the balance sheet. 

The main objectives of the TN are to: 

• Enumerate liquidity risk management tools and examine their Sharī`ah compliance and assess their regulatory and supervisory implications; 
• Assess the needs of the IIFS and provide recommendations in dealing with liquidity risk management issues;
• Propose illustrative versions of Sharī`ah-compliant tools to be used for liquidity risk management purposes; and 
• Provide technical guidance on the modus operandi of the Sharī`ah-compliant liquidity risk management tools.

The softcopies of TN-5 will be available on the IFSB website, www.ifsb.org in both the English and Arabic languages in due course.