* Qatar seeking reforms to modernise financial sector
* Deposit insurance rare in Gulf but govt support implicit
* Islamic banks hold over third of bank assets in Qatar
By Bernardo Vizcaino
May 15 (Reuters) - Qatar regulators will establish a deposit insurance framework that will include a sharia-compliant scheme, one of several reforms aimed at modernising the financial sector of the world's top exporter of liquefied natural gas.
The scheme is part of a strategic plan for Qatar's financial sector developed by the country's three regulatory bodies, which they aim to implement by the year 2016.
While government support for domestic banks is considered implicit in many cash-rich Gulf countries, explicit deposit insurance is rare in the region but would help bring Qatar in line with best practices in other high-income jurisdictions.
The scheme would initially be set up under central bank law, a safety net that would promote financial stability, said the strategy plan published in the Qatar Central Bank (QCB) website.
"Going forward, steps will be taken to implement a depositor protection scheme in Qatar as required by the QCB law. At a later stage, consideration will be given to developing a risk-based premium mechanism," it said.
The plan also calls for developing a sharia-compliant equivalent to deposit insurance, an even-greater rarity, deemed necessary by regulators as Islamic banks now hold over a third of total banking assets in Qatar.
Under an Islamic version, any expenses and investments made by the scheme must comply with religious principles such as a ban on interest and pure monetary speculation.
Bahrain pioneered Islamic deposit insurance in 1993, with others including Kuwait, Jordan and Malaysia also having developed schemes of their own.
Qatar's plan also calls for strengthening regulation of Islamic finance institutions to further develop the sector.
"The three regulatory authorities will develop a common approach to legal issues and harmonise regulatory and supervisory practices," the strategy plan said.
Initiatives include enhancing licensing criteria for Islamic banks, tightening corporate governance standards and those for the sharia boards that oversee their operations.
Regulators would also incorporate prudential standards and reporting on capital adequacy, solvency and liquidity, as well as a framework for liquidation of Islamic finance institutions.
The country's four fully fledged Islamic banks are Qatar Islamic Bank, Masraf Al Rayan, Qatar International Islamic Bank and Barwa Bank IPO-BABK.QA.
Qatar has been working for several years on plans to unify market watchdogs and make the regulation process simpler and clearer for companies. Progress towards this goal has been slow, however, partly because of the complexity of the reform process. (Editing by Alison Williams)