Demand for Short-Term HQLA on the Rise in Qatar’s Islamic Market: IILM

Qatar’s Islamic liquidity management sector is slated to evolve rapidly in the near-to-medium term with demand for short-term, high-quality, liquid assets (HQLA) on the rise, according to Malaysia-based International Islamic Liquidity Management Corporation (IILM).

Reasoning for the optimism in Qatar’s Islamic liquidity management, IILM chief executive officer Mohamad Safri Shahul Hamid said it is driven by targeted financial reforms by the country and the Qatar Financial Centre’s initiatives to attract global financial players.

“Demand for short-term, HQLA will continue to increase in line with the Basel III liquidity coverage requirements, and this will inevitably reinforce the importance of tailored instruments such as short-term sukuk,” he said in a report of the QFC.

Expanding sukuk markets, including short-term and long-term sukuk, will provide Islamic banks with more avenues to manage liquidity effectively and present an opportunity for Islamic lenders and financial institutions to diversify their offerings in the treasury space to accommodate the growing interest in the IILM’s products, according to him.

“This could be offered and complemented through alliances with strong regional and international entities that could provide local Islamic banks with access to, amongst others, established cross-border and even bespoke liquidity solutions,” he added. A key challenge is a relatively limited secondary market for Islamic instruments, as reflected by the global sukuk market in 2023, where outstanding sukuk issuance was valued at $650bn and secondary market trading of about $20-$30bn, with a turnover ratio of less than 5%, according to him.

The lack of development in the secondary market globally limits price discovery and liquidity, Hamid said, adding strengthening secondary market frameworks, fostering active market-making, and deepening regulatory harmonisation would be essential to establishing a robust Islamic liquidity ecosystem in Qatar.

To support the liquidity needs of Islamic banks in Qatar, he said the IILM is scaling up its sukuk issuance, with the programme’s size having increased from $4bn to $6bn in 2024, and on the back of that having successfully increased its outstanding assets from $3.5bn to $4.14bn by the end of 2023.

“This expansion in its programme size allows for larger issuance volumes and a wider range of maturities, giving local Islamic banks greater flexibility in managing their liquidity requirements effectively and proactively,” he said.

The IILM will continue to expand and grow its asset portfolio, and introduce a broader mix of asset classes, in line with its core mandate of providing and facilitating cross-border Islamic liquidity management solutions globally.

The IILM believes that its ongoing efforts and commitment will enhance the overall quality and appeal of the IILM sukuk, for the benefit of Islamic banks and other financial entities globally.

In addition, the IILM, in a successful collaboration with Qatar Central Bank (QCB), has over the last two years conducted capacity-building programmes tailored for Islamic banks and financial institutions in Qatar. This is aimed at providing a platform for knowledge sharing amongst industry professionals, regulators and experts, on bespoke topics such as the role of Islamic financial markets and instruments in the development of debt capital market in Qatar.

On the back of the growing interest by the Qatari market in the its expertise in Islamic liquidity management, the IILM is fully committed and honoured to continue this collaboration with the QCB.

“This is part of our effort to enhance the understanding of the role of Islamic financial markets and instruments and to share best practices that will help achieve Qatar’s strategic initiatives to develop its Islamic capital markets as outlined in the Third Financial Sector Strategy and the QCB’s Strategy 2024-30,” he added.