Strengthening the Financial Safety Net: The Role of Sharī`ah-Compliant Lender-of-Last-Resort (SLOLR) Facilities as an Emergency Financing Mechanism

The working paper comprehensively addresses the Sharī`ah perspective on the provision of a lender-of-last-resort (LOLR) facility by the central bank, as well as examining the role and significance of well-designed SLOLR facilities as an emergency mechanism for institutions offering Islamic financial services (IIFS) in promoting the stability and resilience of the Islamic financial services industry (IFSI). The paper also evaluates the possible initiatives (or arrangements) by regulatory and supervisory authorities (RSAs), aimed at providing stand-by funding opportunities for IIFS on a Sharī`ah-compliant basis for short-term, overnight or intraday periods of liquidity stress.