Qudsia Bano

Financial experts believe the State Bank of Pakistan’s decision to inject Rs228 billion through a Shariah-compliant Mudarabah-based open market operation (OMO) reflects the central bank’s growing focus on developing Islamic financial instruments while also addressing short-term liquidity requirements in the banking system.

Talking to WealthPK, Dr Imran Qureshi, a senior Islamic banking analyst at Meezan Bank, said this step demonstrates SBP’s effort to provide a level playing field for Islamic banks that often face challenges in liquidity management due to limited availability of Shariah-compliant instruments. “Conventional OMOs dominate the market, but by regularly introducing Mudarabah-based liquidity injections, the SBP is helping Islamic banks compete more effectively and manage their cash flows in line with Shariah principles,” he said.

The data released by SBP shows that in the seven-day tenor, Rs249 billion was offered but Rs170 billion was accepted at a return of 11.13% per annum. For the 14-day tenor, the central bank received offers of Rs58 billion and accepted the full amount, also at a return of 11.13%. This brought the total accepted amount to Rs228 billion out of Rs307 billion offered. The central bank noted that out of the Rs212 billion offered at 11.13% in the seven-day tenor, Rs133 billion was accepted on a pro-rata basis.

Moeez Ahmed, compliance manager at Dubai Islamic Bank Pakistan, explained that the uniform return rate at 11.13% reflects SBP’s cautious approach to align Islamic instruments with the prevailing monetary stance. “It shows the central bank’s determination to integrate Islamic liquidity operations with the wider money market framework, without creating distortions in short-term interest rate management,” she said.

These experts believe that while the volume of this Shariah-compliant OMO is significantly smaller than conventional OMOs, its importance lies in signalling SBP’s intent to strengthen the Islamic banking sector. With Islamic banking assets now accounting for more than 20% of the overall financial system, they argue that expanding Shariah-compliant liquidity management tools is essential for long-term financial stability.

They expect SBP to scale up such operations gradually as the move not only addresses immediate liquidity needs but also reinforces the credibility of Pakistan’s Islamic banking framework by ensuring that both conventional and Shariah-compliant institutions have equal access to central bank’s liquidity support.

Credit: INP-WealthPk