The UK would like to become the first non-Muslim country to offer sukuk, or Islamic bonds, for trade, the Prime Minister has told the World Islamic Economic Forum (WIFE).
David Cameron said that the Treasury was “working on the practicalities” of issuing a sukuk worth around £200 million next year, with input from industry. Together with the opening of a new Islamic index on the London Stock Exchange, the proposal is designed to attract to the UK a share of £1.3 trillion global Islamic investment.
David Cameron wants to position London as a leading hub for Islamic finance, announcing plans for Britain to become the first Western country to issue a sovereign sukuk, or Islamic bond.
Theis announcement is testament to the growing importance of Islamic finance in the global financial sector and the British Government’s desire to ensure that liquidity continues to flow through the City.
Sukuk are financial instrument certificates that resemble government-issued sovereign bonds while adhering to the principles of Islamic law and religious principles such as a ban on interest and gambling, and paying investors a fixed return based on the profit generated by an underlying asset. Islamic, or Shari’a, finance prohibits interest, or ‘riba’, and does not allow one party to make money unjustly at another’s expense. In addition, wealth can only be generated through trade and investment in ‘real’ assets, such as infrastructure; providing that those assets are not banned by Shari’a.
The value of Shari’a-compliant finance is growing 50% faster than conventional banking, and the value of Islamic investments globally is expected to rise to £1.3 trillion by next year – a 150% increase since 2006.
The London Stock Exchange also announced plans to launch an Islamic index which would identify companies which are filtered according to Islamic principles, which work in much the same way as socially responsible screens.
Islamic investments have already been used to finance London landmarks such as the Shard skyscraper and the Olympic Village.
Earlier this year the Government set up an Islamic Finance Task Force, charged with raising London’s profile as a centre for Islamic financial transactions ahead of its hosting of the WIEF. The annual business event is taking place in London this week, the first time it has been held in a a non-Islamic or Asian city for the first time, and is hosting more than 1,800 political and business leaders from over 115 countries.
Britain first announced plans for a sovereign sukuk five years ago but that issue never materialised as the country’s Debt Management Office decided the structure was too expensive.
The new proposal is less than a fifth of the size of the original and is designed to boost London’s status rather than to diversify Britain’s investor base.
In a speech to WIEF attendees, Cameron said that his ambition was for London to “stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world”. He said that it would be a “mistake” for the UK not to take steps to encourage more Islamic investment.
“We know we are in a global race for our economic future so we are backing our businesses, seeking new markets and banging the drum for Britain to show we are a first class destination for trade and investment,” he said. “When Islamic finance is growing 50% faster than traditional banking and when global Islamic investments are set to grow to £1.3 trillion by 2014 we want to make sure a big proportion of that new investment is made here in Britain.”
Cameron told the conference that the LSE is to establish new indices which would allow potential investors to easily identify Islamic-compliant business activities. The new Islamic Market Index would identify companies that meet traditional Islamic investment principles and would use “the most advanced techniques on the planet” to screen financial ratios and enable investors to identify the safest and least volatile investment opportunities, he said.
