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British PM David Cameron Announces UK’s Intention of Issuing Debut Sovereign Sterling Sukuk

British Prime Minister David Cameron announced at the opening of the 9th World Islamic Economic Forum (WIEF) which was held in London at the end of October 2013 that the UK Treasury is working on issuing the country’s debut sovereign Sukuk. The move has rightly renewed global interest in Islamic finance especially in the UK’s lead in several new initiatives. 

Officials and bankers in London are neither concerned about raised expectations of a flood of sovereign issuances by the UK Treasury, nor the size and placement of the announced Sukuk. One member of the UK Government Task Force on Islamic Finance stressed that the announcement will give a “psychological boost to the UK Islamic finance market and the global industry. The importance is not the size of the Sukuk or where it will be placed, it is the endorsement of the British Establishment. That is the key.”

Prime Minister Cameron reminded the audience that: “For years people have been talking about creating an Islamic bond – or Sukuk – outside the Islamic world, but it’s just never quite happened. Changing that is a question of pragmatism and political will, and here in Britain we’ve got both. This Government wants Britain to become the first sovereign outside the Islamic world to issue an Islamic bond. So the Treasury is working on the practicalities of issuing a bond-like Sukuk worth around 200 million British pounds, and we very much welcome the involvement of the industry in developing this initiative which we hope to launch as early as next year.”

In the past, the Labour Governments of Prime Minister Tony Blair, which did much of the regulatory and legal work to facilitate the issuance of a Sukuk in the wholesale sterling market, for various market reasons fell short of pushing through the issuance of the country’s debut sovereign Sukuk.

The UK Treasury under then Chancellor of the Exchequer Gordon Brown and later under Alistair Darling, at the official level guided much of the technical work through the Debt Management Office (DMO), but the onset of the global financial crisis in 2008 ruled out any imminent Sukuk issuance by the UK Treasury on the grounds that it was not “value-for-money” at the time.

The advent of the Coalition Government in 2010 in some respects was a gamechanger. Several key cabinet ministers are keen supporters of developing the UK proposition in Islamic finance and promoting London as an international hub for Islamic trade, investment and finance. Prime Minister David Cameron in a meeting with Dr Zeti Akhtar Aziz, Governor of Bank Negara Malaysia, the central bank, during an official visit to Malaysia, became convinced that for the UK to be more then a mere bit-part player in the global Islamic finance industry, it had to issue a sovereign Sukuk and more. Similarly, Business and Skills Secretary Vince Cable of the Liberal Democrats is a keen supporter of facilitating Islamic finance and investment in the UK – both in the retail and corporate sectors. This cross-party support for the UK’s Islamic finance proposition is also crucial.

UK Chancellor of the Exchequer, George Osborne, will be aided on the Sukuk issuance project by his newly-promoted Financial Secretary Sajid Javid, together with Foreign and Commonwealth Office Minister Baroness Saeeda Warsi; Minister for Trade, Lord Stephen Green; and Minister for International Development, Alan Duncan – all of whom have already contributed much towards the facilitation of a UK debut Sukuk.

The Prime Minister also alluded to two other new initiatives in Islamic finance led by the UK, the first being the London Stock Exchange Group’s launch of its new Shariah-compliant equity indexes. “These not only identify companies that meet traditional Islamic investment principles but also use some of the most advanced techniques on the planet to screen financial ratios and enable investors to identify opportunities with lower volatility. For example, by ensuring that debt and cash fall within strict limits as a proportion of a company’s total assets. In plain language, this means the creation of a new way of identifying Islamic finance opportunities – a world-leading Islamic Market Index,” explained Mr Cameron.

The UK government, he added, is also partnering with the Shell Foundation to create a new £4.5 million grant to boost the work of the Nomou initiative, a growth fund that provides skills and finance to small businesses across the Middle East and the Gulf. “This fund is open to investors who are looking for both a financial and a social return on their money. And we welcome private investors, companies and governments from across the Islamic world joining us in this exciting new venture,” stressed Prime Minister Cameron. The UK is also boosting its cooperation with the Islamic Development Bank in extending 10 new Chevening Scholarships for the Study of Islamic Finance in academic year 2014-2015; and providing technical assistance in new support for Arab women in business.

Prime Minister Cameron had a simple message not only for the industry but for the world. “Britain,” he maintained, “is a country ready to welcome your (Islamic) investment, a country that values your friendship, and a country which will never exclude anyone because of their race, religion, colour or creed. But if investing in London is good for you, then opening up London to your investment is just as vital for our own success here in Britain.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.”

When Islamic finance is growing 50 per cent faster than traditional banking and when global Islamic investments are set to grow to UK£1.3 trillion by 2014, reminded the Prime Minister, the Government would want to make sure a big proportion of that new investment is made here in Britain. “One of Britain’s unique selling points is its openness and this is a vital part of how we ensure our country is a great success story in the global race. Foreign investment creates wealth, jobs and growth. And far from weakening our industrial base, that investment actually strengthens it. Islamic investment is already fundamental to our success.”

Bankers and businessmen in the UK have welcomed the new initiatives by the Cameron Government in promoting the UK’s Islamic finance proposition. “I am very happy,” maintained a member of the UK Government Islamic Finance Task Force, “that the UK is once again the trendsetter for issuing the first sovereign Sukuk in the West, just as Britain led by authorizing the first Shariah-compliant bank in the West, the Islamic Bank of Britain, in 2005. I think a UK sovereign Sukuk will open the floodgates for other Western sovereign issuers and is going to be an issuance motivator on the supply side for those who want to raise money and say: “We can now look to the Sukuk market to raise money.”

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