London can lead the world as an Islamic finance hub

A sukuk bond issue will promote overseas investment, writes George Osborne

This week, more than 1,000 investors from more than 100 countries and 15 global leaders are gathering for the ninth World Islamic Economic Forum.

London can lead the world as an Islamic finance hub

London can lead the world as an Islamic finance hub

The forum is not in Dubai, Jakarta or Islamabad, however, but in London. For the first time, it is being held in a non-Islamic country – and Britain is honoured to play host. This is an example of the UK’s position as the centre for global finance. And we intend to keep it that way.

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That is why I have already set out to ensure that the City of London is the home to fast-growing new markets, from Indian infrastructure funds to offshore Chinese renminbi. Now we have set ourselves this ambition: to be the unrivalled western centre for Islamic finance.

This will not only create jobs in Britain, but it will also bring investment. London’s Shard building and the athletes’ village for the 2012 Olympic Games were made possible by Islamic finance. And Islamic investment is continuing to play a vital role in rebuilding UK infrastructure – from the £400m Malaysian investment in Battersea power station, which will regenerate the Nine Elms area of London after decades of decay; to the £1.5bn Dubai investment in the London Gateway, the UK’s first deep-sea container port.

Just look at the mathematics. Islamic finance is growing 50 per cent faster than the traditional banking sector, and it has huge growth potential. A quarter of the world’s population is Muslim but only 1 per cent of the world’s financial assets are sharia-compliant. Across the Middle East and north Africa, less t han 20 per cent of adults have a formal bank account. That gap presents a huge economic opportunity for the UK.
We are building on existing strengths. London, with $19bn of reported assets, is already a major home to Islamic finance outside the Islamic world.

Britain has more sharia-compliant banks than any other western European country. And it has more than a dozen universities or business schools offering executive courses in Islamic finance – including a new programme for senior executives at the University of Cambridge announced this month.
We need to do even more if we want the UK to reap all the benefits of Islamic finance. So we have announced plans to make government schemes such as student loans, start-up loans and the enterprise allowance compatible with Islamic finance rules.

But with the World Islamic Economic Forum in town, now is the time for a big and bold step that will cement the UK’s reputation in the Islamic financial world. Today the prime minister will announce that the UK Treasury is working on the practicalities of issuing a bond-like sukuk worth about £200m.

Our ambition is clear: to make Britain the first sovereign to issue an Islamic bond outside the Islamic world. Sukuk bonds do not pay interest but instead entitle investors to a share in the returns generated by an underlying asset, such as property, making them Islamic-compliant.

These bonds will support the expansion of Islamic banking in the UK – providing economic benefits to non-Muslims and Muslims alike, including the 2.7m Muslims living in Britain.

The government’s Islamic bonds issue will act as a catalyst for corporate institutions to follow suit – further expanding the use of sukuk as an asset class in the global capital markets, and helping to promote more needed overseas investment in Britain’s infrastructure.

Britain is at its best when it is open to the rest of the world. So while others in the western world resist change, this government is embracing it – banging the drum for British businesses, seeking out new markets and welcoming overseas investment with open arms. We are prepared to take the big steps our nation requires if it is to succeed in the global race.

Whether it is attracting money from China, rejecting damaging protectionism and financial transaction taxes, or issuing the first sovereign Islamic bond in the western world – this government is doing what it takes to open Britain up for business, and for new sources of finance and extra jobs.
The writer is the UK chancellor of the exchequer.

EU woes laughable: Islamic finance chief

With parallel EU negotiations with the IMF under way on its involvement, and 15 billion euros of loans anticipated in 2010 from Washington, Tun Musa, head of the World Islamic Economic Forum, maintained that the Western system where “anything goes in terms of lending and conduct” lay behind the Greek fiscal disaster.

BRUSSELS: Muslim nations are “laughing” at European efforts to grapple with a debilitating debt crisis in Greece, which has serious ramifications for the world’s biggest open market, the head of the World Islamic Economic Forum has said.

Former Malaysian deputy prime minister Tun Musa Hitam spoke to AFP in Brussels as European Union plans for a backstop bailout enabling Athens to refinance tens of billions of euros of debt repayments and budget commitments were being thrashed out among eurozone officials.

“Seen from the east, from developing countries, we’re laughing because they’re not doing what they taught us,” Tun Musa said of the EU’s decision to protect Greece rather than sending Athens to the International Monetary Fund.

“You find that a European nation has adopted anything but good practice, which has resulted in a disaster (and) now the name and the prestige of the European Union is at stake, but more importantly, its economies,” he added.

“The normal way of resolving these issues is to go to the IMF. Developing countries do that, but not the EU.

“It’s yes, no, maybe every day,” he said.

Tun Musa was speaking before eurozone finance ministers agreed last Sunday to pump some 30 billion euros (41 billion dollars) into Greece’s coffers this year if necessary — at below-market rates of around five per cent interest.

But in the aftermath of the accord doubts have emerged as to the readiness and scale of the financial aid, with a series of political hurdles still to be crossed before these monies can ever be handed over.

And within no time, new nationwide strikes had pushed Greek borrowing rates back through the pain barrier.

With parallel EU negotiations with the IMF under way on its involvement, and 15 billion euros of loans anticipated in 2010 from Washington, Tun Musa maintained that the Western system where “anything goes in terms of lending and conduct” lay behind the Greek fiscal disaster.

The missing ingredients of “responsibility, transparency and accountability,” glaringly absent throughout fraudulent Greek reporting to the EU, were instead to be found in Islamic finance, he argued.

“The methodology of Islamic banking will become more acceptable, even without being in Islam,” he said.

He cited a surge in the numbers of specialist economic religious ulama, who re-interpret Sharia law for expansion throughout non-Islamic territories.

Sharia prohibits interest on money and re-distributes added value based on goods not paper.

Ironically, Moody’s Investors Service said earlier this month that the Islamic finance industry had a market potential of at least 5.0 trillion dollars — more than five times its actual 2009 value.

A host of countries, led by Britain but stretching from Italy to Japan and Russia, are planning joint Islamic finance ventures, seen as filling a perceived vacuum in confidence.

The march of Islamic finance will form a major plank of the WIEF’s sixth annual conference in Kuala Lumpur next month.

Tun Musa even blamed default in Dubai on the penchant in the Middle East to “look West”. A heavy hit endured by Singapore during the Asian financial crisis of a decade ago, was due to the same problem, he added.

“Malaysia was hit least because we did not put our money in the West,” he insisted.

In November, Iranian President Mahmoud Ahmadinejad argued before the 56 member-state Organisation of the Islamic Conference, the WIEF’s core backer, that the “world system based on usury has collapsed.”

But anticipating criticism that a drive by Islamic finance was just another way to “ram Islam down Western throats,” Tun Musa said the onus was on Europe to find the political will to face down anti-immigrant, anti-Islam extremists, otherwise it would be “sunk.”

Turkey’s long-stalled talks on EU accession represented the perfect test if Western and Islamic financial and economic models were to be successfully fused post-crisis.

Europe was “going to lose a huge stabilising community that is playing a very important role as a bridge between the Muslim and the Western world,” he warned of a move, led by German Chancellor Angela Merkel, to pull back from full membership talks.

“There will come a time that the Turks say ‘enough is enough, we’re going our own way,’” and that will be to turn towards Islam, he stressed.