Wednesday, March 13, 2013

UK government faces uphill struggle to be Islamic finance hub

The UK government established an Islamic Finance Task Force to try again to find its place as an “Islamic finance hub” which it never fully attained before the financial crisis.  The government’s decision not to pursue a sovereign sukuk as recently as 2011 set London back in its ambition to challenge financial centers in the Middle East and Southeast Asia for preeminence.  The stated reason for not issuing the sovereign sukuk was that it did not ‘provide value for money’, which if true strictly on the basis of cost  could turn out to be a shortsighted mistake.  

The London Stock Exchange remains a formidable challenger for any exchange seeking sukuk listings, but the rest of the UK Islamic finance industry is underwhelming at best.  The opportunity cost from not issuing a sovereign sukuk after so many years of market expectation could be a significant headwind that an Islamic Finance Task Force will struggle to overcome.  If the UK hopes to attract capital through sukuk as a result of the task force—something it has struggled with to date—it will need to build credibility that the UK government is not just opportunistically looking to Islamic finance and that may be the hardest thing to do with the shelving of the sovereign sukuk.

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