The Bank of England has become the first major Western central bank to set out its stall for sharia-compliant deposit facilities, as Britain seeks to pitch London as the preeminent global centre for Islamic finance.
Born in its modern form in the 1970s, Islamic finance which obeys religious principles such as bans on interest payments – has rapidly expanded over the past decade and there is now more than $2 trillion in Islamic financial assets.
Joining other central banks in the Middle East and Asia, the BoE is trying to allow Britain’s five Islamic banks to access an equivalent to its deposit facility, which normally pays interest.
Britain became the first Western country to issue Islamic bonds in 2014 and the BoE last year became the second Western regulator to join the Islamic Financial Services Board, one of the main standard-setting bodies for Islamic finance.
The BoE will seek views from Islamic banks and others on four potential models, two involving deposit facilities and two involving liquidity insurance. “It could play an important role in confirming London as the leading European centre for Sharia compliant financing,” BBA regulatory director Simon Hills said.