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U.K. Islamic Bond Back on Agenda as London Seeks Shariah Hub

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U.K. Islamic Bond Back on Agenda as London Seeks Shariah Hub
The U.K. was the first Western country to create an Islamic banking license, awarded to the Islamic Bank of Britain Plc in 2004. Photographer: Chris Ratcliffe/Bloomberg

March 11 (Bloomberg) -- A U.K. government working group is considering reviving plans to sell Islamic bonds as part of an initiative to boost Britain’s role as a center for Shariah-compliant financing.

The Islamic Finance Task Force discussed the sale of so-called sukuk at its inaugural meeting today, said Shabir Randeree, chairman of DCD London & Mutual Plc in London and a member of the working group.

“What we will be looking at is whether a sovereign sukuk or an infrastructure type of instrument will be more appropriate,” Randeree said in a telephone interview from London.

The U.K. announced plans five years ago to become the first Western government to issue bonds compliant with Islamic law only to disband the initiative in 2011 when the Debt Management Office said the securities don’t “provide value for money.” The government is renewing its push as the global market for Islamic-compliant financing is set to double to $3 trillion by 2015, according to Standard & Poor’s.

Treasury Minister Greg Clark and Sayeeda Warsi, a minister in the foreign office, are leading the Islamic Finance Task Force, the Treasury said in an e-mailed statement earlier today. A Treasury spokesman said there are no immediate plans to issue sukuk bonds in the U.K.

Dubai Hub

The market for bonds that comply with Islam’s ban on interest is expanding as borrowing costs plunge. The average yield on sovereign sukuk tumbled 126 basis points, or 1.26 percentage points, last year to 2.65 percent, according to the HSBC/Nasdaq Dubai Sovereign US Dollar Sukuk Index. The yield was 2.83 percent March 7, the index showed.

Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum said two weeks ago that the emirate plans to become a hub for Islamic bonds that may rival global centers like Malaysia, home to the world’s biggest Islamic bond market, and Bahrain. Sukuk sales from Dubai have jumped 46 percent in 2013 to $1.75 billion, the best start to a year since 2006, according to data compiled by Bloomberg.

London lacks a unified Shariah advisory council like the one in Malaysia, which is a drawback, said Haissam Saleh, head of Middle East and North Africa treasury structuring and sales at Qatar Islamic Bank U.K. Plc in London.

Innovative Center

The city can nevertheless become a major Islamic finance hub because it’s “well-known for being an innovative center in terms of conventional product structuring,” Saleh said by e-mail today. “English law is already the preferred jurisdiction for many Islamic transactions.”

The U.K. was the first Western country to create an Islamic banking license, awarded to the Islamic Bank of Britain Plc in 2004. “Whatever initiative there was with the previous government has fallen by the wayside,” said Renderee.

The U.K. is pushing for Islamic finance business in tandem with a drive for yuan trading. The Bank of England and the People’s Bank of China plan to sign a deal on a three-year currency-swap arrangement soon, the BOE said in an e-mailed statement Feb. 22.

“We should be doing more to promote the sector,” said Warsi, the foreign office minister. “There are also major opportunities to attract investment into the U.K. as demand for Islamic finance increases from private investors and sovereign wealth funds.”

To contact the reporter on this story: Maria Levitov in London at mlevitov@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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