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Islamic Liquidity Management and focus on Meezan Bank

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Muhammad Arif : Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan

It is official! The world has changed, and investors find themselves in a “new normal” also when it comes to money market investments. An advanced liquidity management is not just a necessity but an essential aspect for every investor. The concept of Islamic Liquidity Management (ILM) has not been at the forefront within the overall investment universe but quickly gathers of importance.

The ample liquidity coupled with broad and extensive support of the financial system pushed interest rates to extremely low or even negative levels. This environment causes many challenges when managing liquidity and the Islamic Liquidity Management theorem deals exactly with this subject. Every investor is confronted with the debate about credit vs. duration risk and how best to find the right balance.

The Islamic finance industry holds assets of around $2.5 trillion as of 2018 and grew by an average rate of over 6% over the last six years. Compared to total assets of global financial institutions it is a mere 0.66% but with raising importance. In this context, and with the growing threat of further negative interest rates, new liquidity options have to be taken in consideration.

We are at the cusps of defining the Islamic Liquidity Management for the future. With a growing gap between available liquidity and investable assets new and innovative products need to enter the market to satisfy the demand for Sharia compliant investments. The current low / negative interest rate situation will not change in the foreseeable future and using the knowledge of when and how much liquidity is needed combined with of Al Waseelah Plc expertise, new innovative Sharia compliant products will change the Islamic Liquidity Management landscape forever.

As interest rates (Riba) are prohibited any solution needs to take all aspects of Islamic finance into consideration. Murabaha compliant liquidity products based on self-liquidating, physical assets on an instant transaction allows for an advanced liquidity management in the money market space. The fixed rate, fixed date and stable return allow managing forward liquidity more efficiently.

Al WaseelahPlc made it its mission to provide groundbreaking solutions in the Sukuk space and to offer investors new Liquidity Management tools. Embracing the “new normal” and using advanced liquidity tools will allow investors to make better decisions within their overall liquidity management.

The Sukuk subscribed by 37 international and regional investors. The order book exceeded USD 1.5 billion and ICD released price guidance at MS + 160 bps area. The diversity of the order book saw investors from 33 countries in Europe, Asia and the Middle East. More specifically, 7% of the transaction was allocation to UK/Europe, 21% to Asia, 72% to the Middle East. By investor type, fund managers were allocated 9%, Banks/Private Banks 59%, Agencies/Central Banks 29% and others 3%. The largest Sukuk issuance by ICD since inception and double the amount from its inaugural issuance in 2016 of USD300 million, despite the institution’s absence from the capital markets over the last four years.

Now we came to Meezan Bank the largest Islamic Bank of Pakistan.

Meezan bank deposits are 1 trillion 369 billion with assets as Rs1 trillion 673 billion. Its share capital is 14 billion with Rs 35 billion as profit

For the purpose of liquidity management, the Bank invested Rs 112 Billion in Pakistan Energy Sukuks I and II and Rs 179 billion in GOP Sukuk. Due to lack of availability of venues for Shariah-compliant investments, BaiMuajjal transactions worth Rs 327 Billion were outstanding at year end.

One can please to observe that the Bank has launched Roshan Digital Account which supported the inward cash flow into Pakistan from Non-Resident Pakistanis and facilitated launch of Islamic Naya Pakistan Certificates. It is heartening to see that deposits grew by 35% to reach a sum of Rs. 1,254 billion as on December 31, 2020. During the year, the process of allocation of assets and funds to various deposit pools, announcement of overall profit-sharing ratios for Mudarabah-based deposits, monthly allocation of weightages, and distribution of income to deposit accounts was monitored and reviewed in accordance with the respective pool management guidelines of SBP and Meezan Bank.

One can submit a filled & signed application form to Meezan Bank. Submit the required cheque for Processing Fee & External Agency costs. In the case of a Co-Applicant, all income related documents of the Co-applicant will also be required. Meezan Bank will verify your residential/office addresses.

Meezan Bank’s Easy Home works through Diminishing Musharakah and conforms to Shariah laws specifically related to financing, ownership and trade. The nature of the contract is co-ownership and not a loan because the transaction is not based on lending and borrowing of money but on joint ownership in houses.

Legally (in accordance to Pakistan’s Law and Regulations), it is required for all leasing entities to insure the leased assets. As such, Meezan Bank insures its leased assets. Meezan Bank insures its assets through Takaful only, which is the Islamic product for insurance.

Car Ijarah is Meezan Bank’s car financing product and is Pakistan’s first Interest-free car financing. It is based on the Islamic financing mode of Ijarah (leasing). This product is ideal for individuals who want to get interest-free financing for acquiring a car.

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