The Jeddah-based Islamic Development Bank aims to issue its first short-term sukuk this year, and is studying how it might start to guarantee Islamic bond issuance by member countries, said a senior executive.

A lack of short-term paper, a key instrument for liquidity management by banks, has been a significant constraint on the development of Islamic finance globally.

The Malaysia-based International Islamic Liquidity Management Corp began trying to fill that gap last year with issues of three-month sukuk; it now has $1.35 billion outstanding.

The IDB hopes to join the IILM in issuing short-term instruments this year. They could come in the form of 30-, 90-, 180- or 360-day sharia-compliant securities, said Abdul Aziz Al Hinai, vice-president at the supranational lender.

"We don't have a timeframe but we're trying to do something in 2014," Hinai told reporters at an event in Dubai.

"There is high demand as we look at the market. So those who are providing this to the market will do a good service."

The IDB, which on Thursday completed its largest-ever sukuk issue, a $1.5 billion, five-year deal, is also looking to do longer tenors to help fund its projects and prevent asset-liability mismatches, Hinai said.

However, he cautioned that while the bank had already completed a couple of private deals with a ten-year lifespan, the wider market wasn't ready for longer-term Islamic bonds.

IDB, which has 56 member states, aims to spend around $6-6.2 billion in 2014 on projects in these nations, up from $5.5 billion in 2013 and $2.2 billion in 2008, Hinai said.

Since it issued its first public sukuk in 2009, its method of funding projects has shifted from purely cash provided by its members to a roughly equal split between equity and sukuk fund-raisings.

Hinai said the AAA-rated lender was currently studying ways to guarantee sukuk issues by members for specific projects, so that countries could raise the money themselves instead of having it funnelled through the IDB.

"We are studying the feasibility of providing some sort of insurance to a sukuk issued by a member country," Hinai said, adding this could happen through the IDB's insurance arm, the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC).-Reuters