Cecilia Valente's Profile
UK sovereign sukuk? Yes, no, maybe …
Given that a general election looms and parties are out to get as many votes as they can, I half- expect grand promises to expand the Islamic financial sector, which is still growing despite the crisis.
At an event hosted by law firm Norton Rose, both major British political parties went out of their way yesterday to stress London’s superiority in matters of Islamic finance — but neither was willing to expand on what it lacks most: a sovereign sukuk.
If the UK issued a sukuk (roughly described as an Islamic bond) it would:
- Diversify its investor base- not a bad prospect for an indebted country- standing a chance to attract further liquidity.
- Show it is not complacent and really means business creating a benchmark in Europe, where no significant sukuk issuance occurred, excluding a 100 million euro issuance in 2004 in German region Sachsen-Anhalt. Pre-crisis rumours had it that the UK would issue sukuk worth £2 billion in short term notes making a real statement about its Islamic finance ambitions.
- Provide help to the five stand alone Islamic banks, which are required by the market regulator to put in place liquidity buffers, consisting of government bonds or cash. Because there is no sovereign sukuk, these shining monuments to London’s superiority in Islamic finance depend on debt issued by the Islamic Development Bank.
- Encourage corporate sukuk issuance, which is not too probable without the government leading by example.
The UK may be proud of its sophisticated Islamic finance sector, but neither Labour or the Conservatives could shed light on an issue casting a long shadow on the sector’s long-term prospects.
Exchequer secretary to the Treasury Sarah McCarthy-Fry said Labour has not shelved the plan, which seemed almost fait accompli (excuse my French) just before the global credit crunch. She told a crowd of Islamic finanace bankers and practitioners the intended sukuk was not value for money. Quite why was not terribly clear.
Mark Hoban, shadow financial secretary to the treasury, said his party has discussed the issue and understood “the importance” of the sukuk – the only thing was; it was not value for money.
Pressed by one of the Islamic banks present, who suggested a tete a tete (excuse my French again) to discuss what exactly makes a sukuk not “value for money”, he conceded it was a “legitimate concern.”
Some of the attendees told me later they were relieved to hear the Conservative party would at least not undo what the Labour Government did. Inshallah, one would be temped to say…
The panel of experts including bankers, scholars and consultants, who debated after the politicians, said a UK sukuk would have, and could still, attract investments.
They were not too worried though, not because of rock-solid market arguments, not through their special business acumen or experience, but because they hope to rely cast-iron historical precedent: the Anglo/French rivalry.
Paris is mounting a challenge to London to get a slice of the lucrative Islamic finance cake (excuse their French), the panel thought nothing will make any UK government — of any political persuasion — get a move on more than the threat of the French stealing their thunder, which one panellist ambitiously said was only “seconds away”.