The City of London step into Islamic finance

It is a fact; the City of London is currently the largest center for Islamic finance outside the Muslim world.

As the British Prime Minister David Cameron said at the World Islamic Economic Forum: "Our ambition is now to go even further". Moreover, he highlights the fact that "London is already tapping on this sector: over 20 British banks offering Islamic financial products while 49 Islamic bonds (commonly called "sukuk") were listed for five years at the London Stock Exchange, for a value of $34 billion".

Positive perspectives

In addition, it seems that the Islamic finance sector, which recorded an increase of 150% since 2006, should represent more than $1,300 billion next year, according to estimates from the British government. This phenomenon clearly explains the determination seen in David Cameron’s words regarding his position toward this sector: "I do not want London to be just a great capital of Islamic finance in the western world, I want London to be with Dubai and Kuala Lumpur one of the greatest capitals of Islamic finance in the world".

Development initiatives for Islamic finance

Specifically, the London’s will to become one of the strongholds of Islamic finance in the world will get through the issuance of a "sukuk", produced by the British Treasury. This is a world first for a non-Muslim country.

For information, "sukuk" are investment certificates in accordance with the religious recommendation from the Koran forbidding the faithful to offer or subscribe to a loan subjects to the principle of interest. In other words, these investment certificates are backed by assets whose performance pays capital contribution in order to get round the interest system commonly adopted in the West.

We learn that for an amount of £200 million or €234 million, the title of sovereign debt in accordance with Islamic principles could be put on the market next year. Finance Minister, George Osborne, hopes that the program "will act as a catalyst" in attracting numerous investments and encouraging British companies to follow this new way to raise funds.

Defining a new index

"Another world first for the City of London" according to David Cameron, the London Stock Exchange is preparing to launch an Islamic index. Thus it should gather the various companies in accordance with investment principles of Islam.

To the Muslim world, this sukuk issuance provided by London is "a welcome decision", said the Afghan President Hamid Karzai, who said that Islamic finance can play a role of "strengthening regarding ethical and moral values" in the global finance currently affected by the crisis.

Specifically this new index should allow London to check whether the new investment from Islamic finance, are indeed made in Britain as wish David Cameron and the British government.

Growth stimulation

"Foreign investment creates wealth, jobs and help to create growth," said the Prime Minister of the United Kingdom, where the government has a priority to strengthen trade with emerging powers.

We also learn that the London landscape has been transformed by Islamic finance already. For instance we know that the Shard (this arrow made of glass, measuring more than 310 meters and built by the Italian architect Renzo Piano), was funded by Qatar in part through Shariah-compliant financial arrangements. Just as the Olympic Village made and built for the Olympic Games which took place in London last year.

This topic interests you? See also our article regarding islamic microfinance and its specifications: What is islamic microfinance?

Sources: CGAP Portail Microfinance, L’Expansion, World Islamic Economic Forum

Tags: United Kingdom, London, Qatar, Islamic finance, Muslim world, Islamic world economic forum, microfinance, sukuk, Islamic Index, MicroWorld, David Cameron, George Osborne