The United Kingdom is to become the first non-Muslim nation to issue an Islamic bond, called “Sukuk”, Prime Minister David Cameron announced at the WIFE (World Islamic Economic Forum).
He also announced plans for an Islamic Index on the LSE (London Stock Exchange).
Cameron added that he wants London to stand alongside Kuala Lumpur and Dubai as one of the great centers of Islamic finance anywhere in the world. “Investing in London is good for you and opening London up to your investment is good for us,” he said.
Under Sharia law, as far as an Islamic bond is concerned, no business dealings or interests may be charged. Transactions have to be based on business activities or trade, and cannot involve alcohol or gambling.
Over the last seven years, Islamic investments in the UK have increased by 150% and are forecast to reach £1.3 trillion in 2014.
£200 million Islamic bond issue
An Islamic bond issue worth £200 million ($324 million) is expected to be launched in 2014, the UK Treasury said. It is structured so that it yields a fixed return from a service or tangible asset, charging no interest.
In September 2012, Turkey became the first country in Europe to issue an Islamic bond. Some British companies, such as HSBC Holdings PLC and Tesco PLC has issued sukuks through subsidiaries in southeast Asia and the Middle East.
According to the Wall Street Journal, so far this year about $27 billion of sukuk have been issued worldwide, approximately 40% less than in 2012.
David Cameron said:
“When Islamic finance is growing 50 per cent faster than traditional banking and when global Islamic investments are set to grow to £1,300bn by 2014 we want to make sure a big proportion of that new investment is made here in Britain.”
According to Bloomberg, the suruk announcement is the opposite to what Robert Stheemen, CEO of the Debt Management Office, had said. He said in an interview last month that offering sukuk was “not going to be value for money.”
The UK government assures that the issuing of the sukuk and the Islamic index will not encourage anti-Israeli investments. A spokesman said “The government’s decision to issue a Sukuk compliant bond is about making sure Britain is open for business – we will not open one door at the expense of another. While the Treasury is still working on the practicalities, we can confirm that the government would never exclude a supplier on nationality grounds.”
Chris Wright wrote in Forbes that the £200 million sukuk issue will scarcely make a difference in London, home to one of the deepest and most liquid debt markets worldwide (the gilt market). Britain can fund all it needs with its currently-available tools.