LONDON, 19 April 2007 — Ed Balls, the minister responsible for the City (London’s financial center) at the UK Treasury, yesterday hosted a summit of Islamic financial services “experts” at No 11 Downing Street, the first-ever such meeting to be held at the Chancellor of the Exchequer’s official residence.
The summit purportedly discussed the recent government budget 2007 measures with regards to the tax treatment of Islamic financial products such as Sukuk (Islamic trust certificates); diminishing Musharaka (co-ownership) housing financing schemes, and Islamic insurance (Takaful). It also looked at how the business and Islamic community could continue to work with the government to drive Islamic finance forward in the UK.
Ed Balls, a close friend of Chancellor Gordon Brown and who is also economic secretary to the Treasury, said after the summit that “the UK is at the forefront of developments in Islamic finance. I am keen to capitalize on the momentum gained in budget 2007 by listening to the industry and ensuring that the government takes every opportunity to promote innovation and growth in this area. By enhancing the competitiveness of the financial services sector, through creating a level playing field for Islamic finance products, we are also able to increase choice of, and access to, financial products for Muslims and non-Muslims in the UK.”
However, opposition politicians, while supporting the UK government initiatives in social and financial inclusion, were skeptical about the timing of this summit. “These measures were announced in the budget 2007 almost a month ago. Some of those market players present at yesterday’s summit were in any case consulted over the provisions announced in the budget. We all know that there are crucial council elections coming up in May up and down the country except in London. Some of these constituencies have a large Muslim population,” said one official.
Of the UK’s 2 million or so Muslim population, the banks offering Islamic banking products, according to the Treasury, have attracted only 30,000 customers thus far.
Part of the problem is that the likes of HSBC Amanah, Lloyds TSB, Barclays, Royal Bank of Scotland and other market players are neither interested nor willing to devote too many resources to educating consumers or marketing Islamic financial products. The lack of market education and awareness is a universal problem of Islamic finance except in Malaysia, where both the regulators and market players have proactive education and marketing programs in place, sometimes spearheaded by the prime minister himself.
The UK government’s aims for Islamic finance, according to the Treasury, are to continue the growth of the global wholesale Islamic finance market in the UK, as part of the City of London competitiveness agenda being pursued by the Chancellor’s High Level Group on City competitiveness; and to create a level playing field in alternative finance and investments, such as Islamic finance, in the retail market.
“HM Treasury, the Financial Services Authority (FSA) and HM Revenue & Customs (HMRC) will together take forward this agenda and continue their strong and beneficial dialogue with the industry and the government,” stressed the Treasury.
The UK during 2007 introduced a number of measures to promote Islamic finance.
The UK budget 2007 introduced new measures for Sukuk, enabling them to be issued, held and traded in the same way as conventional corporate bonds. This, says the Treasury, is expected to increase primary issuance in the UK, and to further stimulate an already growing secondary sukuk market in London.
HMRC similarly issued guidance alongside the budget on the treatment of diminishing Musharaka (co-ownership), a common structure used for Islamic mortgages, and Takaful products, to provide more clarity and encourage growth in these markets. Banks such as Lloyds TSB, Royal Bank of Scotland, Islamic Bank of Britain, ABC International Bank and HSBC Amanah are all offering Shariah-compliant products, including Islamic mortgage.