Managing the demand and supply of liquidity in islamic banking (Case of Indonesia) – Dr. Rifki Ismal

Managing the demand and supply of liquidity in islamic banking (Case of Indonesia) – Dr. Rifki Ismal

EM Strasbourg Bussiness School
(Université de Strasbourg)
with
European Research Group
“Money, Banking & Finance”
Financial and Monetary European Integration Group
Workshop on Islamic Finance
in Strasbourg
What Islamic Finance does (not) change
March 17th,, 2010,, EM Strasbourg Business School

Abstract

This paper attempts to assess the demand and supply of liquidity in Islamic banks. Firstly, it starts by identifying the sources of short-term demand and supply of liquidity. Secondly it assesses the historical performance of the bank to manage liquidity. Thirdly this paper predicts the short-term future performance and investigates the resiliency of the industry against any liquidity pressure. ARIMA models are used for such purposes particularly to produce the estimated numbers.

The paper finds that the industry has historically managed the liquidity very well. Nevertheless, the resiliency against liquidity pressures is not strong enough because it does not perform well when the irregular demand of liquidity or liquidity run occurs. As such, this paper suggests to Islamic banks to strengthen their liquid instruments, improve the liquidity management, business operations and further educate the Islamic banking principles to the public.

Keywords – ARIMA, Wadiah, Mudarabah, Cash reserve

source: http://www.em-strasbourg.eu/ems/ems-workshop-on-islamic-finance-33.html