21-05-2025
- Business
- New Straits Times
Islamic liquidity instruments advancing but remain fragmented: Fitch
KUALA LUMPUR: Islamic liquidity management instruments (ILMIs) are gaining traction across key Islamic finance markets such as the Gulf Cooperation Council (GCC) region and Malaysia.
However, the sector remains fragmented due to differences in regulatory frameworks and interpretations of shariah principles, according to Fitch Ratings' Islamic Finance Survey 2025.
The firm said Islamic financial institutions continue to face structural challenges in managing short-term liquidity, mainly due to the limited pool of compliant instruments and uneven market adoption.
"The development of ILMI is crucial for the stability and growth of Islamic finance, as they enable institutions to meet short-term funding needs without compromising Sharia principles," it said.
The report highlighted that cross-border transactions remain limited, with a lack of regulatory harmonisation and standardised instruments hindering wider acceptance.
"Greater collaboration between regulators, standard-setting bodies and financial institutions is essential to improve standardisation and develop a more integrated Islamic liquidity framework," Fitch said.
Still, it acknowledged ongoing efforts by national regulators and market players to expand the ILMI ecosystem.
"The evolution of ILMIs is a necessary condition for enhancing the resilience of Islamic financial systems, particularly as the industry grows in complexity and scale," it added.
