As part of its strategy to broaden liquidity provision to the market, the Bank of England commenced work in the second half of 2015 to assess the feasibility of establishing a Shari’ah compliant facility.
The Bank recognises that Islamic banks are currently unable to use the Bank's existing liquidity facilities. In particular, the Sterling Monetary Framework is the mechanism by which the Bank sets interest rates, and interest-based facilities are not deemed Shari'ah compliant.
The Bank's work on this medium term project is progressing, and on 12 February 2016 it published a consultation paper. This set out the Bank's preliminary findings from the feasibility study, and detailed four potential models that could form the basis of future Shari'ah compliant central bank facilities. The deadline for responses has now passed. Any comments or queries should be e-mailed to: islamic.finance@bankofengland.co.uk.
Following review of consultation feedback and further analysis, the Bank will decide which model(s), if any, are most suitable and should be implemented.
As part of the Bank’s broader engagement on Islamic finance issues, in 2015 the Bank became an associate member of the Islamic Financial Services Board (IFSB). The IFSB is an international body whose membership includes national regulators and central banks from around the world. The IFSB aims, among other things, to promote the development of a prudent and transparent Islamic financial services industry, and to provide guidance on the effective supervision and regulation of Islamic finance firms.
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