Financial Engineering of Islamic Treasury Bills

In finance literature, treasury bills are securities that show the liability of their issuer (that are usually governments) to repay their nominal value in the future. These bonds are issued at the complete support of treasury’s commitment and credit and do not have any coupon. Treasury bills are debts in nature. The main objective of this instrument is financing the budget deficit of governments but they have also other functions such as free risk interest rate measurement. They are a good instrument in implementation of monetary policy. Although its current model is discounting and includes riba (so Islamic countries cannot use it), but recent studies show that it Islamic treasury bills can be designed using the capacities of Islamic contracts.This research seek to design operational models of Islamic treasury bills proper to real needs of the government in case of budget deficit. This paper using descriptive-analytical methodology, first classifies the financial needs of the government considering the two dimension of “nature” and “time” in case of budget deficit and finally designs three financial operational model of treasury bills appropriate with different time buckets and the nature of budget deficit in order to purchase commodities, services and funding cash needs.