Within the budget, the Chancellor re-iterated a commitment to “promote the expansion of the UK market in Islamic finance.” He also announced measures designed “to promote the City of London as a centre for global Islamic finance.”
“The Chancellor is working to create a level playing field for British Muslims who want to run their financial affairs in accordance with their religious ethics,” says Junaid Bhatti, Director of Islamic Finance consultancy Ballencrieff House.
Bhatti is one of the architects of the UK’s Islamic finance revolution, (four Islamic banks have opened in the last four years), and was part of the team that set up the Islamic Bank of Britain in August 2004 – the first Islamic bank in the Western world.
“The Chancellor’s budget lays the foundations for the UK government to issue a sovereign Sukuk (Islamic bond) within the next year. Several measures have been announced to assist with this historic project; the main changes will be the introduction of changes to the stamp duty regulations to ensure that Sukuk will be given the same tax treatment as conventional bonds,” explains Bhatti.
Of course such changes will provide a boost for the Islamic finance industry in the UK: “Official government support for Islamic finance, through the issuance of Sukuk, will send a powerful signal to Muslims in the UK and abroad.
Muslims in the UK will be given confidence in the stability and long-term prospects of the fledgling industry, and will be encouraged to start switching their finances to the Halal alternative. The move will also encourage more Muslims from the oil-rich Middle East to invest more of their funds in one of the UK’s four Islamic banks.”
And we’re talking significant capital flows: as the largest oil-exporters in the world, the GCC states currently have foreign assets of approximately $1.6tn, while the Abu Dhabi Investment Authority has nearly US$875bn in foreign assets.
Bhatti says there is a growing interest in Sharia’a banking as an ethical alternative, with both Muslims and non-Muslims opening accounts, which is no doubt partly fuelled by the current economic climate.
“Right now the capitalist economies are suffering severe liquidity shortages due to the global credit crunch. These economic problems are a result of irresponsible lending and the gambling of customers’ money by non-ethical financial institutions.”
By contrast, Islamic finance forces banks to act more responsibly by shifting a greater amount of risk away from customers, and through an insistence that all transactions must be supported by tangible assets. As Bhatti observes: “It’s the perfect antidote to conventional banking.”
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