Bahrain's central bank has launched a new liquidity management tool for Islamic banks, part of efforts by the Gulf Arab economies to put sharia-compliant finance on a level playing field with conventional banking.
The one-week wakala contracts, offered to Islamic retail banks every Tuesday, will allow the banks to deposit excess funds with the central bank, which will invest their money in portfolios containing sukuk.
The contracts mean Islamic banks can invest liquidity with the central bank in a similar way to conventional banks, Sheikh Salman al-Khalifa, the central bank's executive director for banking operations, said in a statement on April 01.
In the past, Islamic banks in Bahrain have focused on managing their short-term liquidity through the central bank's monthly issues of 91- and 182-day sukuk.
Islamic banking has been growing faster than conventional banking in the Gulf, but it has been hampered by the fact that sharia-compliant money markets are not as developed as conventional ones, limiting options and raising costs for banks.
Policy makers are gradually addressing the problem. Last week, the United Arab Emirates central bank said it was making it easier for Islamic banks to access its special lending facility overnight by expanding the range of collateral they could use.
Oman's central bank has set up a task force to develop sharia-compliant liquidity management tools, central bank chief Hamood Sangour al-Zadjali said late last year.
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