Bank of England seeks to develop shariah-compliant services

The Bank of England (BoE), which in February 2016 published proposals on establishing shariah-compliant liquidity facilities in the UK and outlined four potential models, has returned to the project.

“We recognise that Islamic banks are currently unable to use our existing facilities because they involve interest, which is not deemed shariah compliant”, the BoE said as it published its latest consultation paper entitled ‘Shariah compliant liquidity facilities: establishing a fund based deposit facility’.

The Financial Times reports that the BoE is now consulting with the UK’s Islamic banks over the coming weeks to May 23 on offering shariah-compliant deposit facilities for the country’s retail lenders.

Last year, the BoE canvassed stakeholders’ views on four potential models that could form the basis of future Shari’ah compliant central bank facilities.

  • Two possible deposit facility models – which could help firms that cannot engage in interest-bearing activity to more flexibly meet and manage their liquid asset buffer requirements.
  • Two possible liquidity insurance models – which could provide liquidity to a solvent and viable firm unable to engage in interest bearing activity, in the event of liquidity stress.

The BoE now says that a shariah-compliant deposit facility has been prioritised as it is “currently the greatest area of demand”, although it is unlikely to be established before next year. The BoE may also expand efforts to assist the development of Islamic-friendly insurance tools.

The BoE’s chief economist, Andy Haldane is organising regional meetings with the Muslim Council of Britain and other UK organisations to gain feedback from the public on the proposed models.

 

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