UK takes initiatives to issue Islamic Bond (Sukuk)

UK based Islamic trade body focussing on promoting Islamic finance and taking initiatives to launch sterling-based Islamic bond - Sukuk.

The UK Islamic Finance Secretariat (UKIFS) highlighted challenges faced by United Kingdom?s Islamic finance industry at the 17th annual World Islamic Banking Conference 2010 held this week in Bahrain.

In August International Innovative Technologies (IIT), a maker of industrial milling machines located in the northeast of England funded its expansion plans by raising $10m through a private sukuk. It was the first European company in Europe to raise funds through Shariah compliant Islamic Bonds, Sukuk.

Outside the Middle East as London is Europe?s most sophisticated Islamic finance market. Last year, London Stock Exchange listed 25 sukuk, raising a combined total of around $14.5bn, ranking it just below the Nasdaq Dubai in terms of total value raised.

UK has five Islamic banks and at WIBC 2010, Kazi Rahman, head of legal for UKIFS, said that the group is taking initiatives with bankers, accountants, lawyers, and educational bodies to lobby the government to launch a Sukuk. This would facilitate UK Islamic banks to get  Shariah compliant funds and would widen their pool of lendin

He said: "now the UK's Islamic banks are limited to their balance sheets and can only lend a certain amount. Unlike a conventional bank, they cannot increase their funds by buying gilts as these are not in line with Islamic principles.

"But a sterling-based Sukuk would be phenomenal and enable the industry to flourish. The government and FSA have been supportive and are pushing for this because there is a lot of money in this untapped industry."

Rahman said that large number of UK based companies are considering to obtain funding via Islamic banks. He added that interest in Islamic finance is increasing, especially after the disclosure of Qatar based companies funding for Shard building in London Bridge.

He added: "We have to dispel the notion that Islamic finance is just for Muslims, because the reality is that it is for everyone. About 80 per cent of my clients are non-Muslim because they have found that conventional banks are unwilling to lend, but Islamic banks are prepared to. The 2008 banking crisis has forced more UK firms and investors to look for alternative means of accessing finance."

The increased interest in sukuk based funding was emphasised when Fahed Boodai, co-founder and chairman of the UK-based Gatehouse Bank, a subsidiary of Kuwait's Global Securities  earlier revealed that the British government may issue its first sovereign sukuk by the end of this year.

Richard Thomas, chief executive officer for Gatehouse Bank (FSA authorised Shariah-compliant British bank headquartered in London) said that UK has a great opportunity to benefit from the global growth of Islamic finance.

He added: "We are excited about the opportunities presented in an improved trade and economic outlook worldwide and we are keen to explore new territories where Islamic finance is gathering momentum.

"As well as providing a forum for natural Islamic jurisdictions in the Middle East and Asia, we welcome its wider global engagement to help move the industry into the broader financial services spectrum."

Global recession has lead to worldwide decline in sukuk sales by 24 percent this year to $12bn, compared to a record $31bn in the boom era of 2007, according to data compiled by Bloomberg.

If UK government plans to issue a sovereign sukuk are materialised it would be another major stepping stone in advancement of Islamic finance. Apart from UK in the past months, Egypt, Nigeria, the Philippines and Thailand have announced plans to sell their first sukuk, in a bid to tap into the oil wealth in the Gulf. Australia is also working towards signing up to the sukuk market and is putting in place plans to change its tax system to give Islamic finance products equal pegging with conventional methods.

Reference: Global Islamic Finance Magzaine
www.globalislamicfinancemagazine.com