By Bernardo Vizcaino

Bahrain's central bank has released a consultation paper to study possible changes to rules for sharia-compliant financing arrangements which the kingdom's Islamic banks can offer to accredited investors.

The move comes as part of a broader push to revamp Bahrain's efforts in Islamic finance, an industry it helped to pioneer, in the face of growing competition from other centres such as Dubai, London and Kuala Lumpur.

The proposed rules would allow Islamic banks to set up special financing contracts on a wakala basis, a common sharia-compliant agency agreement where the investor agrees to bear the full risk of default.

But in an apparent move to reduce risks and the possible impact on other Islamic instruments, Islamic banks would be required to segregate those funds from their own balance sheets by establishing special-purpose vehicles that would remain under the banks' control.

The consultation period for the proposed rules will close on April 20.

The central bank is also set to release a new regulatory framework for Islamic insurance, in an overhaul of standards which the regulator hopes will attract new business in the sector.

In December, the central bank formally combined existing rules for issuing and listing financial securities, including sukuk, in an effort to make the process more efficient.