London, England - The British government was set announce plans for legislation that would make it the first western country to allow banks to sell Islamic bonds, the Financial Times reported.
According to the business daily, City Minister Ed Balls was set tell a conference of investors that the bill is due to be published along with the annual budget, which is due out in either March or April.
The bill "is an example of public and private sectors working together to fulfil our shared ambition of creating major international markets in Islamic finance with London as their centre," Balls was to say, according to the FT.
The legislation will allow British-based financial institutions to sell Islamic bonds, or sukuk, which conform to the religion's prohibition of paying interest and investment in businesses linked to the alcoholic drinks and gambling sectors.
Companies that have issued Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest, according to the newspaper.
The FT said that the Islamic bond market is worth 45 billion dollars (35 billion euros), in terms of outstanding bonds.
The proposed reform will allow issuers of Islamic bonds to offset the "interest" payments made against their corporate tax bills, as are issuers of regular corporate bonds, the FT reported.