Islamic Banking Page 16th October 2020

Role of International Islamic Liquidity Management Corporation (the IILM) in development of Islamic Banking and Finance

The International Islamic Liquidity Management Corporation (the IILM) is an international organisation established by central banks, monetary authorities and multilateral organisations to create and issue Shari’ah-compliant financial instruments to facilitate effective cross-border Islamic liquidity management. The head office of the International Islamic Liquidity Management Corporation (IILM) is based in Kuala Lumpur. The current member shareholders of IILM comprise the central banks of Indonesia, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Turkey, the United Arab Emirates and the monetary agency, Islamic Corporation for the Development of the Private Sector.

Established on 25 October 2010, the IILM aims to enhance cross-border investment flows, international linkages and financial stability by creating more liquid Shari’ah-compliant financial markets for institutions offering Islamic financial services.

It has successfully launched short term up to one year Sukuk (Islamic Bonds). Sukuks are tradable Shari’ah-compliant US Dollar-denominated short-term financial instruments issued at maturities of up to one year. They are money-market instruments backed by sovereign assets; and are distributed and tradable globally via a multi-jurisdictional primary dealer network; and have strong global support as they represent a unique collaboration between several central banks and a multilateral development organization with the aim of enhancing the financial stability and the efficient functioning of Islamic financial markets.

On 26 August 2013, the IILM achieved a significant milestone by issuing the first US Dollar-denominated, highly rated, short-term, tradable, Shari’ah-compliant Sukūk. The IILM inaugural Sukūk of USD490 million, rated A-1 by Standard & Poor’s Rating Services. They were issued at a tenor of 3 months and were fully subscribed.

The landmark inaugural issuance further represents the first money-market instrument backed by sovereign assets in the form of Sukūk. The IILM Sukūk is expected to complement the intermediate and long-term Sukūk currently available in the market.

On 8the September 2020 the International Islamic Liquidity Management Corporation (IILM) has successfully conducted an auction for a total issuance of USD 900 million short-term A-1 rated Ṣukūk in two series of 1-month and 3-month tenors, respectively. The two issuances were priced by the market as follows; i) USD 400 million of 1-month tenor at 0.22%; and ii) USD 500 million of 3-month tenor at 0.43%, respectively. The final profit rates of the two series lie below and within the indicative pricing guidance for the 1-month and 3-month series, respectively. This demonstrates an increasing interest in high quality Ṣukūk from Primary Dealers and investors. The tender resulted in significant demand from Asian and Middle Eastern investors, with an order book that closed in excess of USD 1.59 billion, representing an average oversubscription rate of 1.77 times. With frequent monthly issuances throughout the year, the IILM has achieved a total cumulative issuance amount of USD 8.37 billion years-to-date, amongst which USD 1.04 billion are new issuances. This represents around 30% of the USD-denominated Ṣukūk year-to-date globally. The IILM is committed to issuing regularly Shariah compliant liquidity instruments to satisfy the market demand and investors’ needs. The IILM short-term Sukūk program is rated “A-1” by S&P. The total of IILM Ṣukūk outstanding is USD 3.0 billion

On 6th October 2020 the International Islamic Liquidity Management Corporation (IILM) has successfully reissued a total of USD1.1 billion short-term “A-1” rated Ṣukūk across three tenors of 1, 3 and 6-months. Further to auction close, the three series were priced at i) 0.26 % for USD 400 million of 1-month tenor; ii) 0.45% for USD 500 million of 3-month tenor; and iii) 0.46% for USD 200 million of 6-month tenor.

Despite uncertain market conditions, the reissuance generated strong demand from investors, with a combined order book in excess of USD 1.6 billion representing an oversubscription level of circa 1.50 times. GCC Primary Dealers took up majority of the allocation across all three series with strong participation observed from Asian-based Primary Dealers and investors on both the 1 and 3-month tenors. Since the start of 2020, the IILM has issued on a monthly basis with a total cumulative issuance amount of nearly USD 10 billion, representing circa 33% of US denominated Ṣukūk globally. The IILM is a regular issuer of short-term Ṣukūk across varying tenors and amounts to cater to the liquidity needs of institutions offering Islamic financial services. The total amount of IILM Ṣukūk outstanding is now USD 3.51 billion. The IILM short-term Sukūk programme is rated “A-1” by S&P.