ABSTRACT
The London Interbank Offered Rate (LIBOR) is a daily interest rate quotation at which banks lend unsecured loans to other banks in the London wholesale money market. This chapter aims to shed some light on the evolution of the LIBOR in order to comprehend the need for having benchmarks in Islamic finance, and also to suggest some solutions for Islamic banks with regard to Sterling Overnight Index Average. The LIBOR is defined as “the rate at which an individual contributor panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11:00 London time”. The Financial Conduct Authority study indicates that there is an insufficient volume of transactions in the unsecured wholesale bank borrowing and related market products to enable the determination of LIBOR to be based on actual transactions. The LIBOR panel banks were compelled to have recourse to “expert judgment” in submitting rates.
