The issuance of a Sukuk by the UK Government is a positive move which demonstrates the establishment of the UK as the leading center for Islamic finance outside the Muslim jurisdictions. In order for the issue to be successful, it will need to be comparable with other UK Government debt, particularly in price and maturity range. Provided that size and price criteria are met, the UK Government Sukuk has the potential to become the global benchmark for Government Sukuk, which in turn emphasizes the strength of the UK’s financial markets and its prime global position. The issue will be of significant importance to the development of the Islamic financial industry globally, but in particular the UK. Like the UK Gilts, some of the issue is likely to be sold to foreign entities, although this is not the main aim of the issue. In addition, it can be argued that the issue is not likely to sell in the Middle East since the yield is less attractive than the average Sukuk, even though these are higher risk and have historically been priced quite generously. The issue is of particular importance to UK-based Islamic financial institutions — including insurance, windows of conventional banks and fully Shariah compliant banks — that will be expected to purchase a significant part of it. Finally, clear and open communications on both the structure and the aim of the issue will assist in its success and general acceptance.
DR NATALIE SCHOON: The period for written submissions in response to the Treasury consultation document on Sukuk issued last November has finally ended and officials will now be considering how to proceed. The Archbishop of Canterbury’s speech resulted in a predictable backlash from some of the popular press in the UK, with much misinformation on Shariah disseminated. However, this makes it more likely that the Treasury will proceed with the Sukuk issuance, which has become as much a political as a financial matter. Not to proceed would be greeted with dismay by British Muslim politicians and appear as a vindication of the anti-Islamic stance of the more reactionary journalists. The initial Sukuk issuance, expected early in 2009, will therefore be politically symbolic, but probably of limited financial significance. Of more significance would be a decision by National Savings and Investment to offer Shariah compliant retail savings products. They already offer products with the returns based on a retail price index plus formula rather than interest, so providing a Shariah compliant return, and not merely an Islamic structure, would not be difficult. PROFESSOR RODNEY WILSON:
The UK Government is issuing the Sukuk because it makes financial sense to do so — tapping into a new source of funding at a competitive pricing. The Archbishop’s intellectual views and subsequent wild reaction is part of an ongoing public debate in a multicultural and open society. It has no impact on business deals like issuance of Sukuk. KHALID MAHMOOD BHAIMIA:
To be an Islamic finance hub in Europe, the UK needs to set a high standard of rules and regulations, based on Shariah law, that enable regional as well as international investors to share in the rapidly growing wealth of Islamic finance. Investors always seek a secure environment that provides credibility and safeguards their wealth. The UK government can issue a Sukuk at:
Since the Sukuk is backed by real assets, those assets should be identified clearly. Islamic financial institutions, practitioners and scholars can play an important role in this matter. They can
While some negative sentiment and confusion around Shariah law have been generated, ultimately any UK Sukuk issued would fall under English law. This is already the case for many international Sukuk issued thus far. The main issue will be perception. The UK Government will need to be careful in the PR surrounding such issuance, ensuring that the purpose and the ‘governing law’ of such issuance are well communicated to an unsophisticated public, especially given the sensationalist media. KHALID HOWLADAR: Vice-president/senior officer, Moody’s Investors Service
The Archbishop of Canterbury’s comments on Shariah law have been largely misinterpreted to suggest that UK law can be ignored in favor of Shariah courts. However, the UK’s involvement in the Islamic finance industry has demonstrated that this is false and has shown remarkable agility in dealing with other legal systems. English law is widely used as the governing law for many Islamic finance deals (e.g. Sukuk issued by Middle Eastern companies) in order to attract international investors. This agility can be used to ensure the success of the UK’s plan to issue Sukuk. The UK government is having a problem because in the west, the term Shariah is loaded and not well understood by the general public. In order to address the debate surrounding the inclusion of Shariah law in financial areas, the government needs to bring clarity that the Sukuk will remain subject to the UK and use of the Islamic Sukuk structure is a way to attract investors who otherwise would not participate. The end result of the deal, if done right, will be to lower the financing costs for HM Treasury, which benefits the British taxpayer. Conveying this message will create the greatest chances for success of the UK Sukuk. BLAKE GOUD: Executive director, Institute of Halal Investing
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