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UK Government on Track for Second Sukuk Issuance “in the Near Future” as HM Treasury Sees Growing Role for IF in Post-Brexit and COVID-19 Recovery Dispensation

The UK Government remains committed to issuing a second sovereign Sukuk “in the near future” confirmed an HM Treasury spokesperson in an interview with Mushtak Parker. “Last year the Government announced the UK will develop a second sovereign Sukuk and we remain committed to this issuance. We are currently monitoring market conditions very closely, considering COVID-19, and we look forward to issuing in the near future. Further announcements, including on the timing of issuance, will be communicated in due course,” explained the spokesperson.

In January this year, HM Treasury’s Debt Management Office (DMO) issued an invitation to tender “for Sukuk syndication banking services for the United Kingdom’s sovereign Sukuk issue, through an open and competitive process.” There is no doubt that HM Treasury’s pre-occupation in dealing with the health and economic impact of COVID-19 is having a bearing on the timing of any such commercial papers, and will ultimately also depend on the right market conditions and whether the Sukuk is “value for money for the UK taxpayer” and whether it satisfies HM Treasury’s own impact assessment for bond/Sukuk issuances.

The strength of the UK’s Islamic finance policy is underlined by a supportive cross-party approach in the House of Commons which ensures continuity in the event of a change of prime minister or government party in office or indeed a chancellor of the exchequer. Indeed, Chancellor of the Exchequer, Rishi Sunak, an ex-Goldman Sachs banker, embodies this ministerial continuity having served as Chief Secretary to the Treasury to his predecessor Sajid Javid, who played a pivotal role in enhancing the UK’s Islamic finance proposition.

In this respect there is an in-built continuity of UK plc policy towards Islamic finance and investment, which may take a more prominent nuance in a post-Brexit era as the country seeks to attract more investment, trade and financial partnerships especially from the wealthier Organisation of Islamic Cooperation (OIC) countries.

The final piece in the Brexit saga is nearing on 31 January 2021, when the UK’s exit becomes absolute – deal or no deal. The UK will need various sources of inward Foreign Direct Investment (FDI) in job generating investments and of course in facilitating trade especially with new partners where the risks of doing business could be higher.

Inward FDI flows from the OIC countries especially the Middle East and North Africa (MENA) into the UK is historically low relative to other trading partners, but the latent investor demand and investment potential remains encouraging. In addition, there could be an extra role for the Islamic finance industry to contribute to facilitate this especially through tripartite cooperation say between the UK, an OIC member country and a third market.

“As an example,” added the Treasury spokesperson, “ONS (The Office of National Statistics) data shows that FDI from Near & Middle East countries accounted for just 2.1% of total UK inward FDI in 2018, and so has potential for growth. The Government remains committed to developing Islamic Finance in the UK to enhance the competitiveness of the UK’s international financial centre and to promote financial inclusion. Having left the EU, we believe that the Islamic finance industry will have a growing role to play as we focus on taking a truly global view of the opportunities that exist for our financial services sector.”

For those who think that there is a more meaningful hands-on role for Islamic finance beyond the activities of the banks currently operating in the UK to contribute to economic recovery in the current COVID-19 mitigation era, especially in attracting investment in infrastructure especially urban regeneration and affordable housing, two economic sectors which are eminently suitable for Islamic finance, the message could not be clearer.

“The UK’s Islamic Finance sector,” reminded the Treasury spokesperson, “is a fundamental part of our economy and its significance to UK financial services is always growing; therefore, it will certainly make up a key part of our economic recovery.” This wider remit is also impacting in new areas of cooperation and opportunities where the UK Government is also taking the lead. In July, the UK Government in partnership with Islamic Finance Council UK (UKIFC) convened the inaugural Islamic Finance & UN Sustainable Development Goals (SDGs) Taskforce through a virtual meeting bringing together 40 global Islamic finance leaders.

The meeting explored the role Islamic finance can play in addressing the US$2.5 trillion funding gap for the UN’s17 Sustainable Development Goals agreed in the UN’s 2030 Agenda for Sustainable Development (SDGs) as part of the post-COVID-19 economic recovery. With assets expected to reach US$3.8 trillion in 2022, Islamic finance is one of the fastest growing sectors in the global financial industry. Achieving the 17 SDGs will take over US$5 trillion investment per year.

The UN’s SDGs are the blueprint to achieving a better and more sustainable future for all, addressing issues such as climate change, education and equality. Achieving the SDGs requires a coordinated global effort with Governments and private sector, including the financial services sector as a whole

The UK Government is currently the Taskforce’s first Country Partner with the expectation that other traditional Islamic finance jurisdictions, such as Saudi Arabia, UAE, Bahrain, Kuwait, Qatar, Malaysia, Indonesia, Turkey, Nigeria and even South Africa, will join the taskforce in addition to industry bodies such as the Islamic Development Bank (IsDB), the IFSB, AAOIFI and IIFM.

“We see the main objective of the Taskforce as generating practical ideas which will enable Islamic financial institutions to act on the natural alignment between Islamic Finance’s sustainability principles and the UN’s Sustainable Development Goals. Other jurisdictions are invited to join the Taskforce both as host partners and contributors through their respective Governments, regulatory bodies or industry bodies. We hope to see this happen as it will further highlight the global nature of the Taskforce,” maintained the Treasury Spokesperson.

HM Treasury has no illusions about the enormous task ahead for the world in bridging the annual US$2.5 trillion SGD funding gap and the niche role Islamic finance can play in unlocking some of the investment needed to deliver SDGs. This could be done through partnerships also between Islamic finance and conventional institutions in areas of SDGs common to both and also co-financing projects and initiatives with country international development funds, sovereign wealth funds and development banks.

“Islamic finance,” reminded the Treasury Spokesperson, “is one of the fastest growing sectors in the global financial industry, with assets expected to reach US$3.8 trillion by 2022. As you have stated, there is currently a funding gap of around US$2.5 trillion per year that needs to be addressed to achieve the SDG’s. Therefore, there is great potential for Islamic Finance to help bridge this gap. We are supporting the UKIFC’s SDG Taskforce because it aims to generate concrete outcomes that will practically enable Islamic finance to contribute towards achieving the SDG’s.”

The UK, according to HM Treasury, is home to five fully Sharia’a-compliant banks, with assets totaling around US$5.5 billion in the first half of 2018. Beyond those five, a range of conventional UK banks offer Islamic finance products and services.

“The City of London has always been a beacon: drawing business, capital, and talent from around the world. It has shone even more brightly over the last few decades as we embraced the energy of Islamic finance. And that beacon will continue long into the future – not dimmed by Brexit but fueled by Brexit – as we move towards a truly Global Britain. Our commitment to equal treatment for all has helped attract investment, while our legal and regulatory systems have been emulated across the world. Companies are also flocking here because Britain is the home for Islamic finance expertise in the West. There are over 200 international law firms, at least 25 of which have dedicated Islamic finance units. And we have the world’s highest number of institutions offering Islamic finance courses: more than the likes of Malaysia and Singapore,” stressed the HM Treasury spokesperson.

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