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The UK could become the first non-Islamic sovereign to sell sukuk, bonds that are compliant with Islamic law.
The United Kingdom is considering issuing sukuk, bonds that comply with Islamic law, the government has announced.
If it goes ahead, it will be the first non-Islamic sovereign to do so. Last year, Turkey became the first European country to issue sukuk. UK companies including Tesco PLC and HSBC Holdings PLC have also issued Islamic bonds through their subsidiaries.
Treasury officials are working out the details for an issue next year that would raise about $324 million, the prime minister's office’s said.
“Already London is the biggest center for Islamic finance outside the Islamic world,” Prime Minister David Cameron said at the World Islamic Economic Forum in London Tuesday. “Today our ambition is to go further still. Because I don’t just want London to be a great capital of Islamic finance in the western world, I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world.”
Islamic bonds pay no interest but provide fixed payments to investors based on the profit generated by an underlying asset. This enables Muslim lenders to comply with Islamic financial law that forbids lenders from receiving interest.
Jeddah, Saudi Arabia-based Islamic Development Bank, sells top-ranked sukuk, but most sovereign Islamic bond issuers do not have the highest investment grades – a gap the UK hopes to fill. The UK has an AAA credit rating at Standard & Poor’s.
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The London Stock Exchange also announced Tuesday that it is creating a new Islamic market index, featuring companies that meet traditional Islamic investment principles.
"The recent effort to diversify business and product offerings could be seen as a way to keep competitive in the financial world despite the capping of banking bonuses and attempts to cap shadow banking bonuses, the worry being that this could drive the finance world away," Alex Conroy, financial sales trader at Spreadex, said in a note, MarketWatch reported. "By welcoming all foreign investment this should ensure London remains a leader in global finance."