A large section of Islamic market participants continue to hold up the possibility of a UK sovereign sukuk as a talismanic prize that will cement London’s pride of place as a western hub for Islamic finance. The topic is revisited every year, with much parade, and yet the government’s understanding of why it is in its interests to do this grows ever dimmer.
Either the case is not being made well enough by those being consulted, or the government’s stock answer that gilts are much cheaper is a way of putting its fingers in its ears to the discussion.
This is lamentable, but to insist on continuing the debate diverts time and energy away from finding mutually beneficial solutions that actually stand a chance of working.
Focusing on this single — admittedly highly visible — product is not helping the government at all, or indeed Islamic finance in the country. There are plenty of other ways of helping the UK economy through the Islamic model, in areas such as infrastructure, energy and housing, that are not even getting a look-in.
The Islamic finance seminar held last week at the House of Commons by law firm Norton Rose provided a case in point. Business secretary Vince Cable was at pains to stress that the government sees Islamic finance as an industry it wants to help (like any other niche market), but did not offer many thoughts on what Islamic finance could do to help the government.
Cable reiterated that a government sukuk would be useful “if the terms were right”, before noting that there may soon be a Shariah compliant way of providing student loans. Yet while this last idea may be lucrative to the providing bank, it hardly addresses some of the government’s more pressing concerns.
Areas such as infrastructure and social housing clearly need financing — and this is money that could be sourced from cash rich investors in places like the Middle East. London mayor Boris Johnson continues to search for ways to finance the building of new affordable homes — yet successive governments have struggled to make the optimistic 6% maximum return look appealing to pension fund investors. They usually want something in the region of 7%-12%.
Islamic finance may be the solution. Its investors are far more likely to forego higher returns for a safe investment in which there is perceived social benefit. Yet, to judge from Cable’s speech, this is hardly at the forefront of his recent dialogue with the industry.
A key component therefore needs changing. For Islamic finance to work in the UK it needs a wider array of people, particularly those who are genuinely interested in making a difference, to come forward — not just those who want to take a fee.
There also needs to be less focus on a particular badge (sukuk, or even Islamic finance itself) and more focus on the benefit it can bring.
Only then might the government and the UK Islamic finance industry see an alignment of interests — and a chance to show that Islamic finance can be a solution with social responsibility at its core.