Islamic interbank money market in Malaysia : the analysis of the modus operandi and the instruments from shariah perspective

Abstract

This thesis studies the Islamic Interbank Money market in Malaysia (IIMM) from the Shari`ah and legal point of view. The significance of the research can be viewed from the point of the criticism against the credibility of the market in terms of the Shari`ah compliance requirement. Another problem is the dearth of tradable instruments in the IIMM which culminates in the liquidity mismatch in the liquidity portfolios of the Islamic financial institutions. The scantiness of the instrument also poses challenges to the emerging jurisdictions of the Islamic banking across the globe as regards the best Islamic money market model that is worthy of adopting. The objective of this research is to contribute to the efforts towards the solving of the problems. Thus, as for the issue of the compliance of the Market with the Shari`ah principles, a jurisprudential study of the underlying contracts of the Modus Operandi of the market and that of the instruments was conducted. Therefore, the findings of the study show that there is a need for the Shari`ah adaptation of the underlying contracts of the Modus Operandi of the IIMM. However, as for the underlying contracts of the instruments of the IIMM, it is discovered that they are all Shari`ah compliant, given the fact that all the contracts are rooted in the literatures of Islamic jurisprudence, notwithstanding the divergence of opinions between the scholars of the notable schools of law, on some of the contracts. Moreover, as regards the matter of the inadequacy of tradable instruments, a proposal for the developing of Bay` al-Wafa` which is a sale contract under the Islamic commercial law as an instrument of the Islamic Interbank money market is made. Therefore, an instrument which is coined as Bay` al-Wafa` Repo (BW Repo-i) is proposed to be introduced into the Islamic Interbank money market. The proposition is the contribution of the current research to the subject of the IIMM. Finally, the study is a qualitative legal and jurisprudential research. It finally concluded that the Malaysian model of the Islamic Interbank money market can be adopted by other jurisdictions as the best practice model. This will be helpful to the existing jurisdictions that are confronted with the problem of Islamic money market and the emerging jurisdiction of Islamic banking and finance, due to its, viability, simplicity, sophistication and the Shari`ah compliant credibility.