Opportunity

The United Kingdom Government has, since the beginning of the new century, explicitly embraced Islamic finance in order to facilitate Shariah-compliant products and services to be offered to the significant Muslim community in Britain.  The Chancellor of the Exchequer went on record in 2006 in announcing the government’s "long-term ambition to make Britain the gateway to Islamic finance and trade“.  This ambition was stimulated by the recognition that "Islam is Britain's second-largest faith, and Muslims are involved in every walk of British life“. 

More recently, the UK government has enacted legislation facilitating the offering of commercial and wholesale banking products. For example, the Finance Act 2005 took Ijara structures to be extended to commercial property, whilst the Finance Act 2006 widened the ambit to Wakala and Diminishing Musharaka.  The Finance Act 2007 took things even further down the Islamic capital markets route, allowing for Sukuk issues to be treated for the tax purposes of both issuers and investors in the same manner as conventional bond issues, whilst the latest Finance Act 2008 includes enabling legislation to facilitate further amendments going forward.

These innovative legislative initiatives have created a “level playing field” approach evidenced at the governmental level and backed up in the overall regulatory regime.  In addition, the UK government is actively considering a sovereign Sukuk issue during 2008 or (more likely) 2009. 

This degree of engagement will help develop the Islamic finance sector even further in the UK,  especially as City institutions understand its potential and how to use any such issue as a catalyst for further growth.