The dispatch — titled “Islamic finance key to ensuring London as top financial center” and which has a reference ID: 09London24 and a classification of “Unclassified/for official use only” — has no major revelations but does perhaps give an insight into the thought processes of top American diplomats regarding Islamic finance, which major industry organizations such as the Islamic Financial Services Board (IFSB) should consider nurturing or at least engaging with.

In his dispatch, Tuttle, a millionaire businessman who is now partner in a major and lucrative auto dealership in Beverley Hills, summarizes that the British government is promoting the growth of the Islamic finance industry in the UK, although Her Majesty’s Treasury (HMT) has decided against issuing a sovereign Islamic finance bond, a sukuk, in the current economic climate. HMG is courting Islamic finance, and eliminating barriers to its growth, to ensure London preserves its standing as a top financial center despite the financial crisis. Islamic financiers, pleased with HMG's efforts, are also pressing to advance their presence in the UK.

“Islamic finance,” he wrote, “is a small but growing sector, which the UK is actively pursuing, to preserve and increase London's credentials as the seat of global finance. Should London successfully position itself as a leading Islamic finance center, it could gain an edge on New York, when the global financial markets recover. With the UK's fast-growing Muslim minority, HMG (Her Majesty’s Government) also recognizes the potential political and electoral advantage of courting Islamic finance.”

It is a relief that the dispatch sees the UK policy on Islamic finance as one of financial inclusion; of leveraging the competitive position of London as a financial center offering and engaging Islamic finance; and as a possible alternative in a post-financial crisis era, albeit this aspiration is based more on rhetoric than actual deeds.

This is in sharp contrast to the vitriolic sentiments expressed by some ultra neo-cons who have tried to smear Islamic finance as “terrorism financing” and as the life-force of extremism.

On the contrary, Tuttle warns that “Islamic finance is a small but growing sector, which the UK is actively pursuing, to preserve and increase London's credentials as the seat of global finance. Should London successfully position itself as a leading Islamic finance center, it could gain an edge on New York, when the global financial markets recover. HMG perceives supporting Islamic finance as a way to differentiate London from New York and advance London's image as the world financial center. London, being closer to the Middle East, has both a physical and time zone advantage over Wall Street, as well as necessary Islamic finance back office skills already present, which HMG is looking to exploit. With the UK's fast-growing Muslim minority, HMG also recognizes the potential political and electoral advantage of courting Islamic finance.”

Tuttle’s report covers most of the pertinent issues but betrays a certain naivety in some of its assumptions and suggestions. He talks about the huge potential and growth dynamics of the Islamic finance industry.

“The UK,” he added, “now has the only stand-alone Islamic financial institution in the EU, the Islamic Bank of Britain. According to government figures, the UK has the highest value of Shariah-compliant assets (over 8 billion pounds worth) of any non-Muslim country and the eighth largest amount in the world. It is difficult to determine the exact size of the global market but the amount of assets under Islamic management worldwide has grown from $150 billion in the mid-1990s to around $700 billion in 2007, according to an HMT source. Prospects for growth from a Standard & Poor forecast, assesses the industry to potentially contain up to $4 trillion of assets. Other estimates put growth figures even higher, since Muslims account for 20 percent of the world population. Presently only about 1 percent of global financial assets are controlled under finance compliant with Islamic law,” observed Tuttle.

Another interesting observation is the suggestion that “the financial crisis has heightened HMG's desire to court Islamic finance, but to date, the government has only done so largely through public rhetoric, rather than deeds.” He quotes Andrew Cahn, the chief executive of UKTI, part of the Department of Business & Enterprise, who said that “in these times, it is more important than ever that we make the most of growing sectors like Islamic finance.”

What is new is that the UKTI then supported moves of the Association of Corporate Treasurers (ACT) to educate UK companies on the Islamic finance sector and its opportunities for growth during the financial crisis. ACT Chief Executive Richard Raeburn noted that the reduction in funding options and the more expensive rates in conventional markets made seeking alternative funding an increasing trend. “The credit crunch has made an understanding of the (Islamic financial) market essential,” he said. HMT asserted in a December government paper that the financial instability in the global economy must not deter the government from its long-term objective for Islamic finance, and HMG will continue to support the development of Islamic finance in the UK.

HMT’s policy objectives, according to Tuttle, are to establish and maintain London as the gateway for international Islamic finance and to ensure that no person in the UK is denied access to competitively priced financial products on account of their faith. The Bank of England first identified the potential for Islamic financial instruments in the UK in 2000. Since then, the Financial Services Authority (FSA), the key regulator of financial services in the UK, and HMT have introduced legislative changes to eliminate unfavorable tax treatment of Islamic financing structures and create a "level playing field."

The UK Islamic financial market, stressed the dispatch, is mainly aimed at British and international Muslims, but Islamic financial instruments are available to everyone. Products include the sukuk, an alternative investment bond; Takaful, a Shariah-compliant mutual insurance arrangement; and Murabaha, a purchase and resale contract that functions similar to a mortgage.

On the issuance of UK debut sovereign sukuk, the observation is that HMT decided, as announced in its 2008 pre-budget report, to not issue a sovereign sukuk because it currently “would not offer value for the money.” Nonetheless, HMG pledged to keep the situation under review and wrote the UK government “remained committed to promoting the UK as a center for global and Islamic finance.”

Tuttle mentions the concept of Londonistan in association with Islamic finance, which betrays the naivety of the analysis and would bemuse many seasoned observers of the Islamic finance scene in the UK. The director of the think tank, the Centre for the Study of Financial Innovation (CSFI), who apparently mentioned the Londonistan concept at a closed door meeting at which the ambassador was present, has obviously been reading too much of the ultra-right wing media who maintain that Britain is a haven for Muslim extremists, hence the allusion to Londonistan, based on Afghanistan.

A strategic director for an Islamic finance company, reported the ambassador, claimed at a closed conference sponsored by CSFI that the UK's large Muslim population offers an additional appeal for setting up shop in Britain, as Islam is the country's fastest growing religion. Most experts attending the conference agreed that since UK Muslims are engaged with their religion, Islamic finance products offer an additional way for them to further connect.

At separate Islamic finance events in the last months, Tuttle noted that the question was raised whether the credit crunch would have happened under an Islamic system. Experts argued that in a purely Shariah-compliant system, the financial crisis would not have occurred. Mohammed Amin, then director of PriceWaterhouseCooper's UK Islamic finance division, according to the dispatch, pointed out that Islamic practices based on Western products inherently could possess the same faults. However, in his opinion, some basic principles innate to Islamic finance should make a preventable difference, such as lending to only those who can afford it; using the right 'just' price instead of the market price; and following standards against complicated contracts and speculative activity.