Bahrain has recently announced that it is planning to establish a liquidity management center (LMC), the first of its kind in the Arab world. The center, valued at an estimated $50 million, will serve as an aid to Islamic financial institutions, reports Gulf News.
The Bahrain-based Ernst and Young will act as the LMC’s financial advisor, and is currently proposing its services to the nearly 200 banks operating in the region.
Islamic banks today, which serve a community of over 1.2 billion Muslims worldwide, do not have the proper means to manage their daily liquidity. Among the reasons is the fact that under Islamic law charging interest is banned, since it is considered a type of usury. Thus, instead of collecting interest, which in other financial institutions is the basis of profit, banks operate on a system of shared profits on investments.
The LMCs, therefore, will help these banks promote investment opportunities and manage their liquidity levels.
Bahrain was specifically chosen as the future location of the institution, as it is considered the financial center of the Gulf region. Last month, the state issued for the first time Islamic government bills worth $25 million. Bahrain hosts nearly 18 Islamic financial institutions. –(MENA Report)
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