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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 42nd 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.

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