Publication:
Enhancing liquidity risk management for Islamic banks in the West African Economic and Monetary Union (WAEMU): issues and challenges for as Shariah compliance framework
Abstract
Establishing a Shariah compliant liquidity risk management framework for Islamic banks in the West African Economic and Monetary Union (WAEMU) is fundamental for the development of the industry, 40 years after the licensing of the first Islamic bank in the Union. This paper provides a gap analysis of the current liquidity management framework of BCEAO, the central bank of WAEMU s member countries, focused exclusively on conventional banks activities. Institutional and operational challenges of a secular jurisdiction to fully comply with AAOIFI and IFSB standards regarding liquidity deploying and liquidity absorption, are highlighted alongside with the constraints for the establishment of a well-functioning Islamic interbank money market. After a review of the practices in mature Islamic finance jurisdictions (Malaysia, Bahrain, Indonesia and Pakistan) and in a secular jurisdiction like the United Kingdom, the paper identifies the relevant tools to manage these challenges. Finally, guidelines are proposed to establish a suitable risk management framework for Islamic banks in the WAEMU countries, in particularly the provision of a Shariah Lender of Last Resort mechanism in BCEAO s regulations and the creation of an Islamic interbank money market. This paper is hoped to accelerate the on-going work since 2012 within BCEAO and the regional Securities and Exchange Commission (AMF-UMOA), to promote the development of Islamic finance in the region with the technical assistance of the Islamic Development Bank.
Keywords
WAEMU , BCEAO , AMF-UMOA , Liquidity risk management , Shariah compliance , Gap-analysis , Shariah lender of last resort , Islamic interbank money market , Project paper (eMIF)
Citation
Lo, A. A. (2023). Enhancing liquidity risk management for Islamic banks in the West African Economic and Monetary Union (WAEMU): issues and challenges for as Shariah compliance framework (Master dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.org/handle/INCEIF/4020
Publisher
INCEIF
Available in PDF format. Kindly email to kmc@inceif.edu.my to access the item