Degree

Master of Science in Islamic Banking & Finance

Department

Department of Finance

Faculty/ School

School of Business Studies (SBS)

Date of Submission

Spring 2024

Supervisor

Dr. Saqib Sharif, Associate Professor, Department of Finance

Committee Member 1

Dr. Saqib Sharif, Supervisor, Associate Professor, Department of Finance

Keywords

Liquidity Risk, Islamic Banking, Risk Management, Asset Liability Management, Shortage of GoP Sukuk

Abstract

What are the challenges faced by the Islamic banking institutions (IBIs) of Pakistan in the management of liquidity risk and what are the possible alternatives adopted to mitigate that risk? Do IBIs face liquidity crunch or excess? This project discusses the challenges faced by IBIs; since Islamic banking has now been deeply rooted as an alternative banking system that offers Sharīʿahbased financial solutions and contributes towards the growth of economy. Assets of Islamic Banking Industry (IBI) in Pakistan witnessed a phenomenal rise of 111% from PKR 4,725 billion in Dec-2020 to PKR 8,994 billion by the end of Dec-2023. From 2015 and onwards, Pakistan IBIs saw excess liquidity due to deposit growth but no fresh issuance of Government Ijara Sukuk and/or no other investment avenues available for IBIs. Therefore, this project discusses liquidity risk management practices and challenges faced by IBIs in Pakistan specifically focusing on twocalendar years, i.e., 2019 and 2020; besides talking about liquidity risk management issues till June 2024. To accomplish this task, semi-structured interviews with bank professionals from Risk Management Department, Treasury Front Office and Shariah Advisors are conducted. Based on the insights gained from experts through interviews, this study suggests what needs to be done so that IBIs can effectively manage their liquidity risk when faced with either excess liquidity or shortages thereof. This research is more pertinent in the context of Pakistan, as Supreme court of Pakistan judgement labelled conventional banking as impermissible according to Sharia’h laws; hence financial regulator is responsible for full conversion to Islamic banking system.

Document Type

Restricted Access

Submission Type

Research Project

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