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Bahrain to issue Islamic bonds, T-bills

MANAMA: Bahrain is studying plans to issue Islamic government bonds and treasury bills to help boost liquidity in the Islamic financial market, the governor of Bahrain's central bank said on Sunday.

Bahrain Monetary Agency (BMA) governor Sheikh Abdullah bin Khalifa al-Khalifa told a banking seminar the proposed bonds and treasury bills would support the creation and developing of an Islamic financial market in the island.

Bahrain, the Gulf's main financial and banking hub, is home to around 18 Islamic financial institutions.

It was not immediately clear how the planned bonds and treasury bills would deal with the issue of interest, which is banned under Islamic sharia laws.

Islamic banks do not pay or charge interest -- the core of Western banking system -- as it is considered by many Moslems as usury.

Two BMA officials, contacted by Reuters, said the plan was still under study and declined to give any further details.

Sheikh Abdullah said Bahrain had taken steps together with Malaysian authorities to establish the first Islamic inter-bank market which would help ease day-to-day liquidity problems facing Islamic financial institutions.

Malaysia last week agreed with Gulf market regulators and bankers to set up the inter-bank market.

Bahrain and Malaysia's Labuan would be the two trading centres for the U.S. dollar-based Islamic money market which will mobilise billions of dollars of Islamic funds and facilitate liquidity management 24 hours a day.

"We hope it (the Islamic market) will soon see the light," Sheikh Abdullah told the gathering.

Bankers say one of the major problems currently facing Islamic institutions was a lack of means to manage their day-to-day liquidity requirements.

Bahrain currently issues a weekly 10-million dinar ($26.5 million) treasury bills to banks mainly to finance its budget deficit.-Reuters