ACHIEVING BACKWARD INTEGRATION TO ISLAMIC FINANCE: A SOLUTION TO INADEQUATE SHORT-TERM LIQUIDITY INSTRUMENTS

This study examined whether backward integration could provide a viable institutional response to the inadequacy of short-term Shariah-compliant liquidity instruments available to Islamic financial institutions. We used a sequential explanatory mixed-methods approach, including quantitative analysis of 120 relevant financial professionals and qualitative views, grouped under treasury management, Shariah governance, market infrastructure, and institutional investment. We used descriptive statistics and ordered logistic regression for the quantitative analysis. Liquidity management was constrained by limited maturity options, an insufficient range of instruments, limited tradability, and concentration in a few liquidity products. The most significant impact came from limited maturity options. Mechanisms of "backward" integration from asset origination, cooperation with the emitter, and origination and distribution platforms dedicated to the instrument significantly contributed to the perceived availability and accessibility of instruments. Shariah governance is the most prominent institutional determinant of backward integration effectiveness, followed by market infrastructure and institutional capacity. The study integrated a five-pillar framework, including upstream asset origination, issuer collaboration, regulatory and Shariah governance architecture, market infrastructure, and institutional coordination. The study redefines the instrument shortage as an institutional supply issue. It shows how Islamic financial institutions can take on more of the origination, approval, and distribution of short-term qualifying instruments.