Islamic Finance In The UK: Recent Developments Building On Strong Foundations
The UK has sought to put itself at the forefront of Islamic finance and made a loud statement of intent in 2014 with the issuance of its GBP200 million (US$312.4 million) Sukuk - the first to be issued by a European government. While this was certainly a high point for Islamic finance in the UK, it actually represents the culmination of years of positive steps by successive British governments to promote Islamic finance in both the domestic retail markets and in international financial markets. BARRY COSGRAVE provides an overview of the state of Islamic finance in the UK.
The Finance Act 2003 changed the way the Stamp Duty (a tax on property sales in the UK) applied to Shariah compliant mortgages. Shariah compliant mortgages (which commonly use Ijarah or diminishing Musharakah structures) previously gave rise to a charge to stamp duty both on the purchase of a property at the initiation of the financing and at discharge of the financing upon repayment in full to the finance provider, owing to the fact that this involves an additional transfer of ownership. The introduction of specific legislation to do away with this double-charge opened up the domestic market for Islamic finance providers.
On the wholesale markets side, London has long been one of the main venues of choice for listing Sukuk (57 Sukuk have been listed on the London Stock Exchange) and the London Stock Exchange was quick to understand the nature of Sukuk, introducing a specific category for asset-based securities to avoid any overlap with conventional securitization structures.
Successive Finance Acts in 2005, 2007 and 2009 provided specific legislation relating to Islamic finance, and the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010 introduced the concept of 'alternative finance investment bonds' in Article 77A to specifically cover Sukuk issues.
The UK reaffirmed its commitment to Islamic finance this year under the recently issued Emirates Sukuk. Emirates issued its US$917.03 million 2.475% Sukuk due 2025 on the 31st March 2015 with the benefit of a guarantee from UK Export Finance. This landmark Sukuk issuance was the first to be guaranteed by an export credit agency and is further evidence of the commitment of the UK to Islamic finance. The UK government's inaugural GBP200 million Sukuk in 2014 made good on the government's assertions over recent years of its willingness to promote London as an Islamic finance center to...
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