English

Abstract

The aim of this paper is to study the financial instruments which are used for liquidity management in Islamic and conventional financial systems. For day to day operations banks need liquidity and banks must have to manage their liquidity according to the operations. Liquidity risk management is very important for banks as well as for financial institutions. Both types of financial systems have their own different types of financial instruments for liquidity management. These instruments are used and have different applications depending upon the basic idea of their construction. From the discussion it is clear that Islamic financial system has more equity based instruments than conventional system and promotes equity based instruments rather than debt base instruments. Islamic financial system is criticized by the Muslim scholars due to lack of Shariah complaint of products because most Islamic financial institutions do not follow the basic principles of Islamic financial system. Islamic instruments are more in quantity but the problem of Islamic financial products is that they are not more developed as compared to conventional financial system products. Especially, the absence of Islamic capital and money markets in most countries. Due to lack of Islamic markets Islamic products are not more compatible as conventional. If we will develop Islamic financial markets for the trade of Islamic financial instruments then products or instruments of Islamic finance will become automatically compatible.   Key words: Financial instruments, conventional banking system, Islamic banking system, liquidity management.