Islamic Finance – Islamic Money Market (IMM) for short term Financial Products
Islamic short-term financial instruments for the money market The IMM is a financial market for short-term securities, as opposed to the ICM. Inter-bank short-term financing in the IMM is accomplished by the issuing of short-term financial instruments or through the conclusion of contracts like repurchase agreements. The domestic financial system receives short- to medium-term liquidity from the IMM. The IMM's overarching goal is to fortify the institutional framework of Islamic banking activities. This is accomplished by addressing the short-term liquidity needs of market participants and investing surplus liquid resources. Additionally, the IMM acts as a conduit for the dissemination of monetary policy. The overnight call rate, which affects money market rates, is set by the central bank. The money market rate has an impact on other financial markets' interest rates as well as the rates at which different financial institutions lend money to people and businesses. This is how the overall economy is impacted by the central bank's monetary policy. As a result, changes in financial pricing in relation to the overnight call rate affect how the IMM develops. This is necessary to keep the dual financial system stable. The Islamic Interbank Money Market (IIMM) of Malaysia and the Liquidity Management Centre (LMC) of Bahrain are the two primary IMMs. While the former seeks to serve the domestic market, the latter commits to helping to meet the needs of regional and international liquidity markets. Additionally, some authorities provide specialized products to aid in the management of short-term liquidity on the domestic market. The Salam Sukuk issued by the Bahrain Central Bank (formerly the Bahrain Monetary Agency) is an illustration of this. An investment product based on Wakalah, namely agency in investing, has been introduced among the stakeholders in some jurisdictions—particularly in the Middle East—where there are no Islamic liquidity instruments. A bank with a surplus will designate a bank with a deficit to manage the surplus funds placed with the latter under this product. Only assets that have the potential to provide a specified rate of return for the primary or "surplus" bank may be purchased by the agent. A deficit bank would typically attain the rate that is being imposed on its investment. This product could help the deficit bank by providing money for its short-term deficit management while simultaneously serving the commercial demands of the surplus bank.
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