By Mufti Irshad Ahmed Ijaz - The Islamic alternative for interest based LOLR (Lender Of the Last Resort) function has been under consideration of Islamic institutions and scholars since a very long time.
To meet their financing needs, if there is liquidity crunch in money market, conventional banks borrow from the discount window of State Bank of Pakistan (SBP) for a repo transaction to meet their cash constraints.
Islamic banks with sound capital and deposit base, low delinquency ratios and low advances to deposit ratio did not require funds to meet their financing needs. But, with the industry growing at a rapid rate, it is time to fill in the repertoire, the ability to meet funds requirement by resorting to SBP.
The strong deposit base did not create any problems for Islamic banks in initial years of Islamic banking in Pakistan, but as a preemptive move, it was felt necessary to search a solution before crisis occurs.
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