The Effect Of Monetary Policy On Islamic Financial Institution: A Perspective Of Liquidity Management
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Abstract
This study aims to examine the different instruments central banks use to regulate the economy of any country as well as what are the modifications required by the central bank to deal with a Shari'ah-compliant economic system with the perspective of liquidity management. As the Islamic economic system is based on Shari'ah (Islamic law) and it does not allow dealings with riba (interest) and call for a 100 percent reserve system. This study uses library research which comprises articles and books as sources to collect and analyse the data. This study is focusing on the financial institutions (Islamic/conventional) of Malaysia, Bahrain, Iran, Sudan, and Pakistan. Findings showed that a comparative literature review of Islamic and conventional monetary policy revealed that many monetary policy instruments can be adopted in Islamic monetary policy with or without major modifications. The creation of solid monetary policy frameworks for nations with Islamic banks necessitates extensive research and analysis
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