Islamic banking industry is so prospective over the years. Although depositors mainly locate their funds in long-term deposit but their investment motive is not for long-term perspective, rather it is for regular transactions followed by expectation for short-term return. Islamic banks respond the potential of short-term liquidity needs by releasing most of the funds into short-term financing contracts together with preparing some liquid instruments for regular liquidity demanded. There are three tiers of liquid instruments to mitigate any liquidity problem involving internal and external sources of bank’s liquidity. Lastly, the role of central bank and government completes the liquidity risk management mechanism