The UK has accelerated plans to issue an inaugural Islamic bond – known as sukuk – concerned that Hong Kong, South Africa or Luxembourg could pip it to the post to become the first non-Muslim country to do so.
UK chancellor George Osborne last autumn announced plans for Britain to be the first European country to issue sukuk, as part of London’s strategy to become the “western centre for Islamic finance”.
But since then, Luxembourg and South Africa have hastened their plans to issue Islamic bonds, as they compete to attract investment from the Muslim world.
Hong Kong entered the race in March, when local lawmakers passed a bill allowing the Hong Kong Monetary Authority to issue sukuk this year.
Baroness Sayeeda Warsi, a Foreign Office minister, said the UK was focused on making sure its inaugural Islamic bond issuance was right, but conceded the government was “aware of the competition”.
Another person close to the process said the UK could issue the bond in a matter of months but declined to give a date.
UK prime minister David Cameron became intrigued by the possibility of building London’s credentials as a hub for the fast-growing Islamic finance industry during a tour of southeast Asia in 2012.
On the Malaysian leg of the trip, he met the country’s long-serving central bank governor and Islamic finance industry champion Zeti Akhtar Aziz, who convinced him the UK could play a prominent role.
The sukuk issuance is part of a government strategy to help the City of London maintain its position as an international financial centre and capitalise on growth areas, such as Chinese renminbi trading.
Experts have welcomed the UK move as a vote of confidence in Islamic finance and hope the UK sukuk will be followed by more steps to encourage the sector.
“It is the first of many to come, inshallah,” said Afaq Khan, head of Standad Chartered’s Islamic Saadiq arm.
“They’re not trying to raise money, they’re sending a signal. It’s a first tentative initial step, but a statement of support.”