Some questions about the International Islamic Liquidity Management Corporation (IILM)
The IILM was set up by several central banks from Muslim majority countries.
Its aim is to issue high quality Shariah compliant instruments suitable for Islamic banks to hold for their treasury operations.
To date, it has not yet issued any such instruments.
I pose some questions that must be answered before such instruments are issued.
21 November 2012
The magazine Islamic Finance News in its edition of 21 November 2012 posed the following question to its forum of experts:
"With the delay in the issuance of its planned Sukuk, is the IILM in jeopardy of losing its relevance to the industry and what other avenues can be explored to help boost the industry's liquidity?"
The full responses are only available to readers of the magazine. However I have reproduced my own response below.
Many IFN articles have stressed the need for Islamic banks to have access to high quality short term instruments in appropriate currencies to manage their liquidity.
The International Islamic Liquidity Management Corporation (IILM) was established to provide these instruments. It has many central banks from Muslim majority countries as members, and a law was passed in Malaysia (International Islamic Liquidity Management Corporation Act 2011) to facilitate its establishment in Malaysia as an international organisation. The IILM website contains many details about its governance structure. However no instruments have yet been issued.
I could not find on the IILM website answers to the key questions that will matter to a bank that is to hold IILM paper for liquidity management purposes, and to a bank regulator who is to assess the creditworthiness of that IILM paper.
Will the member central banks stand behind the liabilities of IILM? I assume the answer is no, but it needs to be explicitly addressed.
What will be the equity capitalisation of IILM?
What assets will IILM own that it can use as the basis for creating sukuk for sale to banks requiring liquidity management instruments?
What structures will be used for the sukuk?
What currencies will IILM issue in?
Most importantly, whose creditworthiness will underlie the sukuk? For example, with an ijarah sukuk issued by an SPV based upon buying a building from an original owner, leased to that original owner, and with a purchase undertaking from that original owner, the sukuk investors are ultimately relying upon the creditworthiness of that original owner. It needs to be IILM’s credit; hence question (2) about the equity capitalisation.
I suspect that IILM has not issued any instruments yet because those questions have not been resolved.
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