The COVID-19 pandemic exacerbated the already fragile global economy in a year where the world experienced the ‘Great Lockdown’.
Though it appears Islamic financial institutions were able to weather the storm during the financial crisis, they, however, did not survive unscathed by the prolonged effect of the pandemic.
The immediate intervention of regulatory and supervisory authorities to mitigate the liquidity stress faced by the banks was laudable. In addition, the development of Islamic market infrastructures as well as industry standards and tighter regulations as a result of the post-global financial crisis reforms enabled the financial institutions to absorb the COVID-19 market shocks.
Nevertheless, the pandemic is a reminder of the long road to achieving long0term stability. International bodies and central banks can impact the macro landscape but their efforts seem to be limited.
Therefore, in order to facilitate cross-border liquidity management for Islamic financial institutions, the International Islamic Liquidity Management Corporation (IILM) offers readily available tools such as high-quality assets dedicated to helping institutions manage their liquidity while complying with regulations.
The pandemic is a litmus test for cross-border liquidity management, showing the importance and relevance of the IILM. This was accentuated in jurisdictions where the IILM Sukuk benefit from regulatory treatment.
At the peak of the pandemic, the IILM increased its program size to US$ 4 billion and increased the total volume of its monthly issuances. It also adjusted some tenors to fit the investors’ needs for liquid instruments.
As regulatory requirements became paramount in this context of uncertainty, the need for Sharī‘ah compliant securities classified as High Quality Liquid Assets of Level 1 became more obvious.