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The British government announced that it is set to become the first western state to issue Islamic bonds, seeking to meet what it believes is a significant demand for this financial product both inside and outside the UK.
In what ministers believe will be an important gesture to Britain’s Muslim community, the Treasury said that it is paving the way for the launch of the first Sharia compliant UK government bonds by 2008.The move, to be announced by Ed Balls, the City of London Economic Secretary, is unprecedented by any western state.
Sharia compliant bonds have hitherto been issued by the governments of Pakistan and Malaysia and also by corporate issuers around the world, but never by a western state. The UK will not only be looking to issue these government bonds on wholesale financial markets. It will also be looking at using Sharia compliant bonds to allow Muslims in Britain to invest in domestic National Savings products through banks and post offices.
Ed Balls declared that the Government will “promote new ways for British Muslims to bank, save and borrow using Islamic finance products.” He wants the City play a “key role” in the growing Islamic Finance market.
Mr Balls said “The Islamic finance market is growing globally year on year, and we want London to play a key role in this area.” Domestically, we will do everything we can to promote new ways for British Muslims to bank, save and borrow using Islamic finance products. The measures this Government has taken make it possible for issuers to seriously consider the merits of issuing Islamic finance instruments.
“I believe there are great potential advantages for the UK government issuing Shariah compliant government debt. The feasibility study will also be assessing the opportunity for issuing such instruments, taking into account the government’s debt management objectives.”
Islamic finance assets worldwide, including private equity and bonds, are now estimated to be more than £120 billion. Mr Balls announced that officials from the Treasury and the UK Debt Management Office will head up a feasibility study to report back in time for the Pre-Budget Report this autumn.
It will look at the costs and potential benefits of the Government issuing Islamic financial instruments in the wholesale sterling market. Mr Balls has also asked National Savings and Investments to look at the feasibility of the Government becoming an issuer of retail Islamic financial products. The Product Review will report in spring 2008.
Mr Balls believes that the launch of Islamic bonds will help to bolster London’s role as an international financial centre. The Treasury estimates that total Islamic finance assets worldwide, including private equity and bonds, exceed $250bn (€184bn, £125bn).
But Mr Balls also believes that move will send a powerful message to the Muslim community, both in Britain and around the world, that the UK authorities are intent on engaging with them in ways that have not happened in the past. Mr Balls held a meeting with leading Muslim figures in the country recently – including the Muslim Council of Great Britain – at which the idea of launching Islamic bonds was discussed.
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