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Making Islamic Finance a Vehicle for Social Inclusion: A Case for Revisiting the Liquidity Management Practices by Islamic Banks

In: Enhancing Financial Inclusion through Islamic Finance, Volume I

Author

Listed:
  • Muhammad Ayub

    (Riphah International University)

Abstract

Islamic finance is theoretically said to be leading to socioeconomic inclusion, balanced development of human societies and economies by the dint of its established strengths of ban on interest, avoidance from gharar, short selling and speculation, financing of certain economic sectors, and its profit and loss sharing and asset-backing principles. However, its growth is hampered by the shortage of liquidity management (LM) tools. Although liquidity shortage is a genuine concern for Islamic banks, excess liquidity has been the hallmark rendering liquidity management a case of profit maximization even where it leads to the compromise on Shariah principles and becoming a conduit for transfer of liquidity to the interest-based system. This chapter analyzes such products/practices and suggests policy changes for the evolvement of a real, stable, and sustainable Islamic system of finance—a means for achieving the SDGs with focus on fair and just distribution of benefits of sustainable growth.

Suggested Citation

  • Muhammad Ayub, 2020. "Making Islamic Finance a Vehicle for Social Inclusion: A Case for Revisiting the Liquidity Management Practices by Islamic Banks," Palgrave Studies in Islamic Banking, Finance and Economics, in: Abdelrahman Elzahi Saaid Ali & Khalifa Mohamed Ali & Muhammad Khaleequzzaman (ed.), Enhancing Financial Inclusion through Islamic Finance, Volume I, chapter 0, pages 109-136, Palgrave Macmillan.
    • Handle: RePEc:pal:psibcp:978-3-030-39935-1_7
    DOI: 10.1007/978-3-030-39935-1_7
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    Cited by:

    1. Hunjra, Ahmed Imran & Islam, Faridul & Verhoeven, Peter & Hassan, M. Kabir, 2022. "The impact of a dual banking system on macroeconomic efficiency," Research in International Business and Finance, Elsevier, vol. 61(C).

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