Developing an Islamic Central Bank Deposit Facility for Liquidity Management

This paper provides a business case for developing an Islamic Central Bank Deposit Facility using Wakalah (Agency) Funds Based Model in various countries around the world that have existing Islamic Banks. The Islamic Central Bank Deposit Facility will help ameliorate the persistent liquidity management challenge of Islamic Banks in the country and also provide an untapped monetary policy tool for the country’s Central Bank. The recent global financial crises underscore the importance of sound liquidity risk management, as such this deposit facility will assist Islamic Banks to manage their liquidity for stability and in essence help central banks to promote overall financial system stability and economic development in their countries.