| March 26
March 26 The Bank of England is studying ways to
increase the number of sharia-compliant assets that Islamic
financial institutions can use in their liquidity buffers, a
step towards reducing concentration risks in the sector.
The move comes as part of a broader push to promote London
as a top centre for Islamic finance, in the face of growing
competition from other centres such as Dubai and Kuala Lumpur.
Currently, sukuk (Islamic bonds) issued by the AAA-rated
Islamic Development Bank are the only assets that
meet the central bank's criteria for use in the liquidity
buffers of the 22 Islamic financial institutions operating in
These include six full-fledged Islamic banks such as the
European Islamic Investment Bank, Bank of London and
the Middle East and Gatehouse Bank.
In addition to reducing risks, expanding the eligible list
could improve growth prospects for the industry and remove a
potential entry barrier to the sector, a consultation paper
released by the central bank said.
"Recognising only one asset also potentially limits the
growth of existing sharia-compliant firms and creates barriers
to entry for new sharia-compliant firms due to the difficulties
that can be experienced obtaining the asset."
Islamic finance follows religious principles such as bans on
interest and pure monetary speculation; this limits the types of
financial tools that banks can use to manage their short-term
The Bank of England's proposal is in line with the approach
of Basel III global banking regulations, which allow sukuk
issued by high-rated sovereigns to be included in the liquid
assets buffer without a haircut.
This would allow Britain's proposed 200 million pound ($330
million) sovereign sukuk issue to be used, as well as other
high-investment grade instruments such as sukuk issued by the
Malaysia-based International Islamic Liquidity Management Corp.
Sukuk issued by sovereigns with lower credit ratings and
other non-financial issuers could also be eligible, subject to
haircuts and caps, the consultation paper said. The consultation
will end on April 15 but no date was given for the proposed
Britain first announced plans for a sovereign sukuk issue
six years ago but that issue never materialised as the country's
Debt Management Office decided the structure was too expensive.
The new proposal is less than a fifth of the size of the
original, and is designed to boost London's status rather than
to diversify Britain's investor base to a significant degree.
(Editing by Andrew Torchia)