UK Financial Secretary, Sajid Javid, confirmed that he expects the UK’s debut sovereign Sukuk issuance to “take place in the forthcoming financial year” (between 1 April 2014- 31 March 2015).
Addressing the Euromoney Islamic Finance Summit in February 2014, Mr Javid added that HM Treasury has appointed HSBC and City-based international law firm, Linklaters, following an open competition at the end of January to assist in the issuance.
“I have to say, the strength of the competition for those roles was remarkable, and serves as testament to just how far the industry has developed and just how much expertise now exists both here in London and abroad. We anticipate that issuance will take place by way of syndicated offering, and that closer to the time of the transaction we’ll be seeking to include additional syndicate members to help us bring it to market,” he maintained. Sources close to the transaction confirmed that the mandate was only given in the first week of February and work has just started on the structure.
The financial market has long made the case for a Sukuk to be issued by the UK Government, which has looked at the possibility of doing so for the last eight years. For various reasons it has never quite happened. “But through pragmatism – and through political will,” as Financial Secretary Javid, stressed, “I’m very pleased to say that we’re now in a much better place to overcome those issues. I’m confident that this Sukuk issuance will deliver significant benefits both for the UK and for the Islamic finance industry.”
A UK sovereign Sukuk has important implications for the market well beyond the confines of the City of London. According to Mr Javid, a UK sovereign issuance:
a. Should prove that the concept works, and demonstrate that the UK has established both a legal and regulatory framework that puts Islamic finance on a level playing field with conventional finance.
b. Having a top credit issuer like the UK issue Sukuk should move Islamic finance into the mainstream, and encourage its acceptance as an asset class by those who may not have considered it previously.
c. And it will demonstrate that the UK is a country that is open for business, and whose Government welcomes trade with all parts of the globe.
Asked whether HM Treasury might consider issuing follow up Sukuk should the demand for the debut one is overwhelming, albeit that the stated policy is to currently issue a one-off benchmark issuance, Mr Javid said that it remained a possibility.
Financial Secretary Javid also announced that effective 11th February 2014, “the rules for the Government’s Help to Buy scheme have been amended so that providers of Home Purchase Plans – which are a Shariah-compliant alternative to a mortgage – can benefit from the scheme too.”
Another development has been the work on Islamic student and start-up loans. “Last year’s announcement on this was – for me – incredibly important. Fellow British Muslims shouldn’t feel unable to go to university because they can’t get a Student Loan – simply because of their religion. Nor should they feel unable to start a business because they can’t get a start-up loan – simply because of their religious practices. That action – on student loans, on business loans, on home loans – shows that we are embedding Islamic friendly processes into our everyday financial systems,” he continued.
Mr Javid also stressed that the Global Islamic Finance and Investment Group (GIFIG) which the UK Government launched at last October’s World Islamic Economic Forum (WIEF) and which is chaired by Baroness Warsi, Senior Minister at the Foreign Office and Co-Chair with Mr Javid of the UK Government Task Force on Islamic Finance, in London is taking shape and the first official meeting will take place imminently. Its members include Ministers, Central Bank Governors and Islamic bank CEOs and its purpose is to increase engagement in this area internationally.
He revealed, “work is already well underway to identify some of the greatest global experts and practitioners in this field – both from industry and from Government, and her vision is for a group that bring together key public and private sector expertise who can consolidate existing work and develop a set of high level recommendations for the future about building trade links, investing in the building of new infrastructure, about knocking barriers down such as lack of skills or shortages of long-term investment products.”
Mr Javid, who revealed that Islamic finance is a very personal issue for him, reiterated that the UK is in it for the long haul and can show how it can develop in a country with a Muslim minority, and within a secular legal framework. The various announcements clearly show how important this is to the UK Government.
But he warned against complacency stressing that if the UK wants to remain the centre of the financial world it needs to keep exploring – and engaging with – fast growing economies. The Islamic finance sector, he reminded, is growing faster than traditional banking. Islamic investments are set to grow to UK£1.3 trillion over this year, and 10 of the top 25 growth markets in the world have large Muslim populations, with rapidly expanding Islamic financial sectors.
London has always been a global city, and as modern Islamic finance started to develop and grow, the city has grown with it. “By leveraging our common law legal framework, advantageous time zone, deep pool of structured finance expertise, we’ve turned this country into a place well equipped to deal with what you do. We’ve created one of the most advanced regulatory and tax environments in the world to provide a level playing field for Islamic finance. All the major banks in the UK provide Islamic finance products and services in one form or another. We have 6 fully Islamic banks, and we’ve also got all the support networks in place such as the legal or accounting or consulting firms and the expertise they provide, coupled with the benefits of our common law framework, which means that the majority of cross-border Islamic financial contracts reference the English law. In fact, almost every international Islamic contract will touch London – or a London-based firm – in some way,” he explained.
Mr Javid acknowledged that the real proof of the UK’s commitment will come in making sure that those policies and those taskforces and those services help London to reach its full potential as the world centre of Islamic finance, and – in turn – for global Islamic markets to reach their full international potential.