The U.K.’s economy appears to be on the mend at last. To ensure that its financial sector, at least, continues to improve, the country intends to enter the world of Islamic finance with the issuance of an Islamic bond and the creation of an Islamic index.
The first estimate of the third quarter’s GDP indicated that it grew at its fastest pace in three years, with progress in all three sectors: manufacturing, services and construction. Economic output was up by 0.8% for the quarter; coming on the heels of a second quarter increase of 0.7%, that’s the best the economy has done since 2010. Construction in particular, which was helped along by a government Help to Buy program, had its second positive quarter in a row and in the third quarter enjoyed a boost of 2.5%.
The Office for National Statistics also announced improvement of 0.5% for production—that includes a rise of 0.9% for manufacturing—and an increase of 0.7% for services, which has actually improved beyond its highest level in 2008 before the crisis. Services account for 75% of the country’s economic output.
Among those services is the financial sector, which is about to get a boost from a planned Islamic bond, or sukuk, as well as an Islamic index to be added to the London Stock Exchange.
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Prime Minister David Cameron announced plans for the entry into Islamic finance at the World Islamic Economic Forum in London at the end of October. Citing statistics indicating that Islamic investments have risen 150% over the last 7 years and are expected to be worth 1.3 trillion pounds ($2.072 trillion) in 2014, he said that not only does Islamic finance present a good opportunity for the country’s financial sector but he intends for London “to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world.”
Further, according to Ashar Nazim, partner, global Islamic banking at Ernst & Young, there is far more demand than supply for sukuk, as well as for other sharia-compliant investments. “Currently, the demand for sukuks is in excess of $500 billion, whereas the global supply is less than half,” he said.
Britain’s entry into the market, and it will be the first non-Islamic country to issue a sukuk, is planned as early as 2014, and is expected to be for 200 million pounds. To be compliant with sharia law, no interest can be charged, transactions have to be based on an actual trade or actual business activities, and those businesses cannot involve such things as pork, alcohol, or gambling.