Qatar Islamic Bank (QIB) invested 1.25 billion riyals ($343.6 million) in an Islamic bond, or sukuk, issued by the Qatar central bank on behalf of the government to boost the domestic bond market.

QIB, the Gulf state's second biggest lender by market value, said in a statement issued on Sunday that the investment is governed by an 8-year lease that runs until June 1, 2018.

"The government's participation in this investment initiative will directly enhance the local economy," said Sala Jaidah, chief executive of QIB.

Qatar issued 10 billion riyals ($2.75 billion) worth of eight-year conventional Islamic bonds with a coupon of 6.5 percent to local banks earlier in June in an effort  to develop the domestic bond market, and provide a new vehicle to pool the excess liquidity in the Gulf state's banking sector.

"The issuance of the lease sukuk investment in domestic currency aims to diversify the financing industry, consolidating local sukuks and supports the dynamic participation of Islamic financial institutions in funding the governmental sector," Jaidah said in the statement. - Reuters