Bank of England developing models for sharia-friendly services

The Bank of England (BoE) has moved closer to introducing a sharia-compliant deposit facility for retail lenders following lengthy talks with Islamic banks.

The central bank said it was eyeing a fund-based model and would begin to plug it into the system if the facility wins the backing of a new consultation.

Islamic finance obeys religious principles that ban interest payments, with the majority of activity happening in the Middle East, Africa and Asia.

However, the industry has gained traction in the UK, with five Islamic banks being established and the listing of sharia-compliant securities on the London Stock Exchange.

Globally, the Islamic finance industry has grown 46% to 1.9 trillion US dollars (£1.5 trillion) between 2011 and 2015, according to The Islamic Financial Services Board.

The Bank has been investigating ways to introduce a framework for sharia products since 2015 as part of a wider push to offer better access to its liquidity tools.

Last year, it outlined two models for deposits which could be rolled out in the UK, a commodity trading model and a fund-based model.

Updating on its initial consultation, the BoE said a fund-based model proved more popular because it was "more straightforward" and would involve investing in sharia-compliant instruments.

The Bank said it may also start work on establishing a sharia-compliant insurance facility.

The new consultation on the proposals closes on May 23.