KL outlines first global Islamic money market

KL outlines first global Islamic money market

LABUAN, Malaysia (Reuters): Malaysian and Gulf market regulators and bankers agreed on Tuesday to launch what they called the first global Islamic inter-bank market with Bahrain and Malaysia's Labuan as the two trading centres.

The U.S. dollar-based Islamic money market will mobilise billions of dollars of Islamic funds and facilitate liquidity management 24 hours a day, they said after a meeting on this tax haven island off Borneo.

"We have resolved most of the issues, so we can go ahead," Mohamad Razif Abdul Kadir, director-general of the Labuan Offshore Financial Services Authority (LOFSA), Labuan's regulator, told Reuters.

"We hope to launch by the end of the year."

Currently there are no markets that would satisfy the liquidity, profitability, security and Syariah compatibility needs of Islamic banks or banks that offer Islamic financing alongside their conventional systems.

Under Syariah laws, a money market cannot trade or discount debt. Interest is also strictly forbidden.

The money market could help breathe new life into Labuan, a nine-year-old offshore centre that is home to 61 international banks and 62 insurers whose operations were curtailed by the Asian financial crisis.

"In Labuan, we have to find a niche and our niche we thought is Islamic banking and finance," said Razif, who hosted the two- day talks comprising Labuan and Bahrain bankers as well as representatives from the Islamic Development Bank.

Razif said Brunei, Indonesia and Saudi Arabia have also expressed support for the project. Other Islamic nations are expected to follow suit.

Razif said the meeting had ironed out the Syariah issues. The only issue still pending is policy matters involving central banks, he said.

The plan envisaged the setting up of a liquidity management house, where central banks can lend and borrow money from the market.

Labuan has teamed up with the Bahrain Monetary Agency, which oversees the thriving Bahrain financial and banking centre, to develop the money market.