It would be easy to dismiss Britain’s £200 million (Dh1.18 billion) sukuk as a publicity stunt, timed to coincide with the World Islamic Economic Forum being held in London.
With some 2,600 Muslim leaders and business people in town, the United Kingdom’s move to become the first non-Muslim country to issue a Sharia-compliant bond is timed perfectly to prove the point: London is open for Islamic business, as it is for Chinese currency trading, or Russian property investment, or Asian infrastructure funds.
The planned issue is so comparatively small – the UK owes its creditors some £1.2 trillion, or about 75 per cent of GDP – that it might be viewed as a cosmetic exercise rather than a meaningful financial transaction.
But that misses the point.
The UK has become the first non-Muslim country to issue a sukuk primarily to show that, in the right economic circumstances and with the appropriate issuer, it can be done.
It does not mean that Greece, or Spain or Ireland, will be the next country to tap the Islamic markets. The economic fundamentals in these markets would not make sense for prudent Islamic investors.
The UK is different. Its economy is recovering from the global financial crisis at a sufficient rate for the sukuk to make sense for those seeking a Sharia-compliant return.
Islamic investors have shown in a series of transactions over decades that they appreciate the British market, and London in particular. From the big property and corporate investments of the Kuwaitis in the 1980s, to the purchase of P&O by Dubai in 2006, and the current property spree by Qatar in the British capital, Arab investors have proved they are willing to put their money into the UK, in good times and bad.
But it is not just investors from the Arabian Gulf who have demonstrated their liking for the UK market. The presence of some 20 leaders at the World Islamic Economic Forum this week, ranging from Malaysia through Kazakhstan to Bermuda, is evidence that global Islamic investors are persuaded of the British success story.
The exact terms of the UK sukuk issue are not known yet, beyond the fact it is planned over a five-year term, but London’s legions of investment bankers will be working hard to ensure it is structured attractively.
Perhaps their skills will be called upon by France or Germany, two other countries that might in different circumstances consider a similar financial project and which could likewise sell it to the Islamic world.
Other European countries have not been as open as Britain to Islamic investment in the past, as the UK prime minister David Cameron pointedly remarked at the forum.
In tangible financial terms, the UK sukuk offers Islamic investors a benchmark for sovereign debt in the western world. It will set up a yield curve for such financial instruments, and the London Stock Exchange listing should ensure transparency and probity. The LSE is also working on a new set of Sharia-compliant indexes to enhance its attractiveness for Muslim investors.
London is already in the top three issuers of sukuk in the world, alongside Malaysia and Dubai, and it is the unrivalled leader in the secondary market for trading Sharia-compliant bonds.
So if the British sukuk is not just a cosmetic exercise, should it be seen instead as a push for supremacy by the UK in the global contest to lead the Islamic economic world?
Certainly the UK has responded aggressively to the announcement earlier this year that Dubai is on a three-year timetable to become the global capital of the “Islamic economy”.
But the UK’s ambitions are narrower than Dubai’s. London is a financial centre par excellence, and it seems unlikely it would challenge the UAE in the field of, for example, halal food production and standardisation, or other aspects of Sharia-compliant lifestyles identified by Dubai.
On top of that, the announcement that Dubai will next year stage the forum is a signal that the competition to become the global Islamic financial capital is fierce.
And the UAE has one competitive advantage that London, for all its Islamic-friendly posture, can never match: the country is unmistakably Islamic, and smack bang in the middle of the Muslim world.