London can lead the world as an Islamic finance hub

London can lead the world as an Islamic finance hub

By George Osborne, Chancellor of the Exchequer

This week, more than 1,000 investors from more than 100 countries and 15 global leaders are gathering for the ninth World Islamic Economic Forum.

The forum is not in Dubai, Jakarta or Islamabad, however, but in London. For the first time, it is being held in a non-Islamic country - and Britain is honoured to play host. This is an example of the UK's position as the centre for global finance. And we intend to keep it that way.

That is why I have already set out to ensure that the City of London is the home to fast-growing new markets, from Indian infrastructure funds to offshore Chinese renminbi. Now we have set ourselves this ambition: to be the unrivalled western centre for Islamic finance.

This will not only create jobs in Britain, but it will also bring investment. London's Shard building and the athletes' village for the 2012 Olympic Games were made possible by Islamic finance. And Islamic investment is continuing to play a vital role in rebuilding UK infrastructure - from the £400m Malaysian investment in Battersea power station, which will regenerate the Nine Elms area of London after decades of decay; to the £1.5bn Dubai investment in the London Gateway, the UK's first deep-sea container port.

Just look at the mathematics. Islamic finance is growing 50 per cent faster than the traditional banking sector, and it has huge growth potential. A quarter of the world's population is Muslim but only 1 per cent of the world's financial assets are sharia-compliant. Across the Middle East and north Africa, less t han 20 per cent of adults have a formal bank account.

That gap presents a huge economic opportunity for the UK.

We are building on existing strengths. London, with $19bn of reported assets, is already a major home to Islamic finance outside the Islamic world.

Britain has more sharia-compliant banks than any other western European country. And it has more than a dozen universities or business schools offering executive courses in Islamic finance - including a new programme for senior executives at the University of Cambridge announced this month.

We need to do even more if we want the UK to reap all the benefits of Islamic finance. So we have announced plans to make government schemes such as student loans, start-up loans and the enterprise allowance compatible with Islamic finance rules.

But with the World Islamic Economic Forum in town, now is the time for a big and bold step that will cement the UK's reputation in the Islamic financial world. Today the prime minister will announce that the UK Treasury is working on the practicalities of issuing a bond-like sukuk worth about £200m.

Our ambition is clear: to make Britain the first sovereign to issue an Islamic bond outside the Islamic world. Sukuk bonds do not pay interest but instead entitle investors to a share in the returns generated by an underlying asset, such as property, making them Islamic-compliant.

These bonds will support the expansion of Islamic banking in the UK - providing economic benefits to non-Muslims and Muslims alike, including the 2.7m Muslims living in Britain.

The government's Islamic bonds issue will act as a catalyst for corporate institutions to follow suit - further expanding the use of sukuk as an asset class in the global capital markets, and helping to promote more needed overseas investment in Britain's infrastructure.

Britain is at its best when it is open to the rest of the world. So while others in the western world resist change, this government is embracing it - banging the drum for British businesses, seeking out new markets and welcoming overseas investment with open arms. We are prepared to take the big steps our nation requires if it is to succeed in the global race.

Whether it is attracting money from China, rejecting damaging protectionism and financial transaction taxes, or issuing the first sovereign Islamic bond in the western world - this government is doing what it takes to open Britain up for business, and for new sources of finance and extra jobs.