Islamic money market and application of third party guarantee for economic development

Abstract

Purpose of Study: The Islamic money market plays a significant role in the development of the economy and providing funds for short term projects. This paper discusses money market instruments such as treasury bills, certificates of deposit, short period mudharabah interbank investment and Islamic accepted bills of exchange. It examines how short term instruments can be used to import and export goods. The study analyses the mechanisms and characteristics of Islamic money market and finds that it has the same characteristics and mechanisms of the conventional money market; they differ only in the instruments that are traded in the market. In the Islamic money market any instrument which is not in accordance with the principles of Islamic law is not traded. Methodology: A qualitative research methodology in which an Islamic jurisprudential approach is used to analyse data and the permissibility of application of third party guarantee in Islamic money market was utilised. Results: It was discovered in this paper that application of third party guarantee in Islamic money market is permissible. However, the guarantee should be done voluntarily without charging a fee so that the Islamic money market would be differentiated from the conventional money market wherein a fee is charged. Conclusion/-and Recommendations: In the Islamic money market, the instruments used in the market must be acceptable by the principles of Islamic law. It is impermissible in Islamic law for a company that conducts the investment of Islamic money market instruments to carry out its activities in non-halal activities. Islamic money market instruments can be used to finance short period investment, to import and export assets. The researcher suggested to conduct empirical research in order to have a clear picture on Islamic money market instruments and application of third party guarantee in the market.