KARACHI, Jan 25: Meezan Bank Ltd. — the first Islamic bank in Pakistan — has developed the module of Ijara Sukook or Islamic treasury bills for liquidity management of Islamic banks.

If the State Bank and the government allow floating of this instrument it would help Islamic banks make inter-bank lending and borrowing in line with the laws of the Shariah. Sources in SBP say it would also enable SBP to inject additional liquidity into or mop up excess funds from the Islamic inter-bank market.

They say that the Islamic T-bills have been so designed that liquidity management through them would have little inflationary impact. The SBP and ministry of finance are currently assessing the practicability of one-year Islamic T-bills and sources in SBP say that a decision is expected within a couple of months.

“Ijara Sukook or (Islamic Lease certificates or Islamic T-bills) would be assets-backed instruments,” Shariah Advisor of MBL Dr Imran Usmani told Dawn. He said these would be created through securitization of fixed assets of the government that would be first purchased by the investors and would then be leased to the government. The government would pay rentals on these leased assets and that very rental would become the yield of the instrument.

Senior bankers say there is a need for developing an Islamic treasury bill as the stage is set for more Islamic banks coming on the scene and some large local banks poised to transform some of their branches into Islamic banking branches.

Sources in MBL say in the lack of Shariah compliant products in liquidity management the bank has to keep its surplus cash largely in the form of bank deposits. The investment portfolio of the bank is primarily concentrated in equity investments that are also limited to the companies approved by the Shariah Board of the bank.

Apart from the investment in Fayzan Manufacturing Modaraba that comprises half of MBL’s share portfolio the rest of the investment is largely in blue chip companies like PSO, Hubco, Fauji Fertiliser etc. The bank has also made some investment in musharaka-based term finance certificates of Sitara Chemical Industries as these certificates confirm to the laws of Shariah.

“We are expecting diversification in our investment portfolio with the development of Ijarah Sukook,” Dr Imaran Usmani told Dawn.

At the end of June 2002 MBL’s investment totalled a little more than Rs 550 million of which more than Rs 400 million was in equity.

Senior bankers say in the absence of any Shariah-compliant instrument designed especially for liquidity management MBL has been borrowing funds from the inter-bank market through its certificates of Islamic investments that it had developed for deposit mobilisation. Sources in MBL say by end of September 2002 their inter-bank borrowing stood at a little more than Rs 400 million down from more than Rs 840 million at end-June.

“Our inter-bank borrowing went down because we repaid that part of it which we had inherited from Societe Generale,” an MBL explained.

MBL got the licence of scheduled Islamic commercial bank in January last and started commercial banking in March 2002. Later on in May it acquired Pakistan operations of Societe Generale.

At present the bank is operating with six branches across the country.