The World Bank plans to raise as much as $500 million worth of Islamic bonds, or sukuk, this year to help fund an immunisation programme, one of several initiatives from the multilateral body in the Islamic finance sector.

The World Bank, acting as treasurer of the International Finance Facility for Immunisation (IFFIm), would help issue the sukuk, said Michael Bennett, head of derivatives and structured finance at the World Bank's treasury department.

IFFIm has previously raised money from retail investors in markets such as Australia and Japan through so-called "kangaroo" and "uridahsi" bonds. It could soon add sukuk to the lexicon of vaccine financing.

"Right now we're thinking $300 million to $500 million, we are still talking to the market on what the right size should be," said Bennett on the sidelines of an industry conference.

The World Bank has hired Standard Chartered and National Bank of Abu Dhabi to arrange the transaction, which could happen as early as this month although a specific timeframe has yet to be finalised, said Bennett.

"We've been having investor conversations in the Gulf, Malaysia and tomorrow it will be Brunei."

IFFIm, rated AA by Standard & Poor's, is backed by nine countries including France and Britain, it issues bonds designed to roll forward future donor pledges into cash-in-hand today to finance its immunisation efforts.

Since 2006, IFFIm has raised $4.5 billion through bonds, its last issuance was a $700 million bond in June of last year.

Because those pledges are not interest-based, they could be used to structure a sukuk, which follow religious principles such as bans on charging interest and pure monetary speculation.

The World Bank has been engaged in Islamic finance for years and its private lending arm, the International Finance Corp. , is also considering a return to the sukuk market.

Other units like the International Bank for Reconstruction and Development (IBRD) are limited in their direct use of sukuk to fund projects.

But the World Bank is increasingly considering using sukuk in other ways, such as adapting them to be used as "green bonds" to fund projects to increase energy efficiency and expand use of renewable energy.

IBRD is now advising the Dubai government on developing a funding strategy for the emirate's green investment programme, which could include sukuk, said Bennett.

"This likely will require raising funds in a variety of different ways - with green sukuk being just one of the options being considered."

This could help close the gap between ethical and Islamic investing, two sectors which have largely developed independently from each other.

Western institutional investors such as pensions have long favoured green bonds, while investors in the Middle East and southeast Asia require sharia-compliant alternatives to interest-bearing debt.

In the long term, the World Bank is also exploring partial credit guarantees to be used for sovereign sukuk issues, said Bennett.

The World Bank, through IBRD, offers partial guarantees to sovereigns, their agencies and other state-owned entities; Such a programme could be used to help developing countries that have struggled to tap the sukuk market in the past.

A sovereign sukuk insurance product has been developed by the Saudi-based Islamic Development Bank, with the Manila-based Asian Development Bank also considering a product of its own.-Reuters