Editing Islamic banking and finance (section)

====Liquidity====
Islamic banking and finance has lacked a way to earn a return on funds "parked" for the short term, waiting to be invested, which puts those banks a disadvantage to conventional banks.{{sfn|Khan|2013|pp=326-327}}
 
Banks/financial institutions must balance [[Market liquidity|liquidity]] – the ability to convert assets into cash or a cash equivalent quickly in an emergency when their depositors need them without
incurring large losses<ref name="ali-SLMIFI">{{cite journal|last1=ALI|first1=SALMAN SYED|title=State of Liquidity Management in Islamic Financial Institutions|journal=Islamic Economic Studies|date=June 2013|volume=21|issue=1|pages=63–98|url=http://www.irti.org/English/Research/Documents/IES/026.pdf|access-date=19 August 2015|doi=10.12816/0000240|s2cid=17621848|archive-date=5 March 2016|archive-url=https://web.archive.org/web/20160305185348/http://www.irti.org/English/Research/Documents/IES/026.pdf|url-status=dead}}</ref> – with a competitive rate of return on funds. Conventional banks are able to borrow and lend by using the [[interbank lending market]] – borrowing to meet liquidity requirements and investing for any duration including very short periods, and thereby optimize their earnings.{{sfn|Khan|2013|pp=326-327}} Calculating the return for any period of time is straightforward{{sfn|Khan|2013|pp=326-327}} – multiplying the loans length by the interest rate.

While Muslim countries such as Bahrain, Iran, Malaysia<ref name="IIMM">{{cite web|title=Islamic Interbank Money Market|url=http://iimm.bnm.gov.my/index.php?ch=4&pg=4&ac=22|publisher=Bank Negara Malaysia|access-date=19 August 2015|archive-date=15 September 2015|archive-url=https://web.archive.org/web/20150915152317/http://iimm.bnm.gov.my/index.php?ch=4&pg=4&ac=22|url-status=dead}}</ref><ref>{{cite web|title=International Islamic Liquidity Management Corporation (IILM)|url=http://iilm.com/about-us-p-3804-en/|website=IILM|access-date=19 August 2015|archive-date=3 March 2016|archive-url=https://web.archive.org/web/20160303234719/http://www.iilm.com/about-us-p-3804-en/|url-status=dead}}</ref> 
and Sudan have started to develop an Islamic money market, and have been "issuing securitized papers on the basis of ''musharaka'', ''mudaraba'' and ''ijara''", at least as of 2013, the "lack of an appropriate and efficient secondary market" has meant the relative volume of these securities is "much smaller" than on the conventional capital market.{{sfn|Khan|2013|pp=326-327}}

Regarding non-PLS, "debt-based contracts", one study found that "the business model of Islamic banking is changing over the time and moving in a direction where it is acquiring more liquidity risk."<ref name=ali-SLMIFI/>

To deal with the problem of earning no return on funds held for the sake of liquidity or because of a lack of investment opportunity, many Islamic financial institutions (such as [[Islamic Development Bank]] and the [[Faisal Islamic Bank of Egypt]])<ref name="Warde, p. 50, 144">Ibrahim WARDE. Islamic Finance in the Global Economy [Edinburgh
University Press, 2000]</ref> have "been explicitly and openly earning interest on their excess funds, often invested in safer, debt-like or debt instruments overseas".{{sfn|Farooq|2005|p=21}} Rather than forbidding this, "Shariah-experts have provided the necessary [[fatwa]] of Shari'ah-compliance based on the rules of necessities (''darurah'')".{{sfn|Farooq|2005|p=21}}
<blockquote>Scholars in Islamic finance and banking have invoked necessity to permit exceptional relaxations of rules. They have issued [[fatwa]]s
(opinions) allowing Islamic banks to deposit funds in interest-bearing accounts.<ref name="[Vogel and Hayes, pp. 38-39]">Frank VOGEL and Frank Hayes, III. ''Islamic Law and Finance: Religion, Risk and Return''. [The Hague: Kluwer Law International, 1998], pp. 38–39</ref>{{sfn|Farooq|2005|p=21}}</blockquote> though they require the interest be used for "religiously meritorious purposes".