The Central Bank of Bahrain has launched an Islamic liquidity facility aimed at allowing banks to achieve a sharia-compliant return on deposits of excess reserves.

Retail Islamic banks may now deposit reserves at the central bank under a ‘wakalah' agreement. This appoints the central bank as an agent to invest their cash, with the resulting profits shared between them.

Under the facility, the central bank invests in a pre-agreed portfolio, in this case sukuk – a sharia-compliant asset roughly