Islamic Inter-bank Money Market

The Islamic inter-bank money market (IIMM) was introduced on January 3, 1994 as a short-term intermediary to provide a ready source of short-term investment outlets based on Syariah principles. Through the IIMM, the Islamic banks and banks participating in the SPI would be able to match their funding requirements effectively and efficiently. BNM issued the Guidelines on the IIMM on December 18, 1993 to facilitate proper implementation of the IIMM.
The IIMM covers the following aspects:-
Interbank trading of Islamic financial instruments; and
Mudharabah Interbank Investments ("MII")

Only Islamic banks, commercial banks, merchant banks and eligible finance companies and discount houses are allowed to participate in the IIMM.

Interbank trading
Eligible banking institutions are allowed to trade in the designated Islamic financial instruments, such as Islamic accepted bills and Islamic debt securities among themselves. GIC are non-tradable but the players may exchange the papers among themselves based on the price issued by BNM.

Mudharabah interbank investments (MII)
MII refers to a mechanism whereby a deficit Islamic banking institution (‘investee bank”) can obtain investment from a surplus Islamic banking institution (“investor bank”) based on Mudharabah (profit-sharing). The period of investment is from overnight to 12 months, while the rate of return is based on the rate of gross profit before distribution for investments of 1-year of the investee bank. The profit-sharing ratio is negotiable among both parties. The investor bank at the time of negotiation would not know what the return would be, as the actual return will be crystallised towards the end of the investment period. The principal invested shall be repaid at the end of the period, together with a share of the profit arising from the used of the fund by the investee bank. Beginning February 2, 1996, BNM introduced the minimum benchmark rate for the MII i.e. the prevailing rate of the Government Investment Issues plus a spread of 0.5 per cent. The purpose of the benchmark rate is to ensure that only banks with reasonable rate returns participate in the MII.