Islamic financial institutions are to cooperate in establishing a benchmark for Islamic interbank lending.
The current global benchmark “LIBOR”, or the London Interbank Offered Rate, is not compatible with Islamic law which forbids payment of interest.
Instead of interest Islamic banks have developed systems of profit sharing that comply with Shariah Law.
Under the terms of the agreement negotiated amongst 16 Islamic banks (and the Islamic sections of conventional banks) the Islamic Interbank Benchmark Rates for Shariah-compliant US dollar funding will be published daily at 8am London time.
Dr. Nasser Saidi, chair of the Islamic Benchmark Committee said of the move:
“Conventional money markets have relied on LIBOR, which by definition does not comply with Shariah conventions. Islamic markets will be able to rely on the IIBR and it will become an international reference rate for both conventional and Sharia-compliant transactions.”
Thomson Reuters claims the Islamic Finance Industry is worth $1 trillion annually and is growing at more than 15% per year.