PLS as solution for Islamic bank liquidity management?

1) A limited liquidity function

A limited liquidity function is associated to PLS intermediation since the value of the bank depositors’ funds represents the real assets value of the Islamic banks. Islamic banks less exposed to liquidity shortage problem since the remuneration of deposits does not guarantee fixed yields. From the PLS perspective, the less exposition is more linked to the less risk transformation compare maturity transformation. To extend the maturity deposits, Islamic bank can use instruments of management of displaced commercial risk. For instance, Islamic banks do not use all investment deposits for financing and a part is unaffected and remains unused. 

2) Less money creation

In Islamic finance, money is a medium of exchange and unit of account. Money creation reveals the bank to a significant risk of liquidity. The exposition to liquidity risk is related to the degree of money creation. In Islamic finance, credit creation and control for interest free banking system is , “controversial” and “inconclusive” .  Because the ratio of current deposits to total deposits is smaller than their conventional counterparts, the money creation of Islamic bank is less than interest-based banks . The money creation of Islamic bank is “more closely” to the additional wealth creation in the real sector. The principle of asset backing stated that  financial transactions should be based on actual transactions leads to financing linked to real productive activities which is not speculative and unproductive . last but not least , under PLS paradigm, the reduced money creation that reduced inflation limits the liquidity risk. Economically, the reduced money creation may hamper the financing of economic

Refence:
http://ured-tn.com/useruploads/files/khoutem_ben_jedidia,_hichem_hamza_2014.pdf   

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