Interest free liquidity management scheme (time-weighted debt units)

What is it about?

The current paper devoted to develop money market instrument (scheme) that is based on the idea of Al Qardh El Hasan (interest-free loan); called Time Weighted Debt Units (TWDUs). This instrument doesn’t promise any revenue for the supplier and no charge for the lender. The purpose of calculating the TWDUs is to find the equivalent amount of money that can be borrowed by the lender in the future for a maturity differs from the first credit; it is a swap between an amount of credit for a particular period of time and another amount for another period.

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Why is it important?

TWDUs is presumed to help IBs and other IFIs IIFS to add more flexibility in liquidity management in the side of risk management (represented by the potential loss to IIFS arising from their inability either to meet their obligations or to fund increases in assets as they fall due without incurring unacceptable costs or losses); in addition to avoiding the case of hoarding surplus funds in the short term. In addition, the suggested instrument will not be exclusive to IBs or IFIs IIFS; it can be developed to be used in later stage by them as a mean of overdraft between IBs and their clients. Moreover, beside its viability to help in liquidity management for other firms in business sector (non-financial) or government agencies in liquidity management, TWDUs looks for Islamic financial theory as an alternative to the traditional financial theory that is based on interest. Moreover, TWDUs is expected to play an important role in monetary policy in a totally Islamic financial system or even in a mixed one (Islamic and Capitalistic).

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