Whichever party wins the British general election next Thursday, the UK government's policy on Islamic finance will be "business as usual" and all of the three main parties - Labour, Conservatives and the Liberal Democrats - have confirmed cross-party support to continue the Labour government's Islamic finance initiative.
A few days ago, the City-based international law firm, Norton Rose, published a fascinating report - "The Election Briefing: Implications for Business" - which is effectively a roadmap of the positions of the above three parties on a cornucopia of issues including Islamic finance.
Norton Rose, which has a sizeable Islamic finance legal business and one of the top firms with a specialized Islamic finance expertise, concludes that "Islamic finance is an area with clear potential for development. The UK government and the City of London are both promoting its growth, in both the retail and wholesale markets. London's emerging role as a center of excellence for Islamic finance seems likely to continue to develop irrespective of which party wins the election."
At the core of the Brown government's policy is the stated ambition of developing the City of London into a major international center for Islamic finance, which already generates millions of pounds of revenues every year for UK law firms, fund managers, investment banks, auditing and advisory companies, and academic and professional training organizations.
"Islamic finance is an increasingly important part of British business," declares Norton Rose. "UK government policy has in recent years recognized this, and measures have been taken to promote and facilitate Britain as a center for Islamic finance."
But how will the general election affect the above assertion? Although issues relating to Islamic finance are not at the center of the national political debate, it is clear, according to Norton Rose, from government policy where the Labour Party stands. With regards to the Conservative Party, private and public statements indicate that they are broadly supportive. The Liberal Democrats also have privately stated cross-party support for the Brown government's Islamic finance initiative.
As such, whatever the outcome of the election, Islamic bankers in London maintain that there is most likely to be considerable continuity with current UK government policy.
Under Labour, the party in power since 1997, the briefing stressed that there have been significant symbolic and legislative changes relating to Islamic finance under both the Blair and Brown Government's "financial inclusion" policy.
All the enabling legislation do not specifically mention the word "Islamic" but defines certain types of transactions and instruments as alternative and cater for them under relevant changes by specifying tax neutrality treatment for them.
In fact, the UK model for Islamic finance is being replicated in other jurisdictions such as France, Luxembourg and elsewhere. Indeed government-led initiatives started in 2001 involving Treasury, RC (Revenue and Customs), the Bank of England and the Financial Services Authority (FSA). The Treasury has introduced a spate of enabling laws dealing with the abolishing of double stamp duty for equivalent Islamic financial products such as the Diminishing Musharaka and Ijara mortgages; exemption from stamp duty land tax (SDLT) in real estate-backed Sukuk; equal risk weighting for conventional and Islamic mortgages; and the facilitation of sukuk or alternative financial investment bonds.
Although the Conservatives have not published any formal policy on Islamic finance, informal understandings of Conservative and Liberal Democrat positions, added the Briefing, is that they will further the development of Islamic finance on the same basis as the Labour government.
Earlier this year at a Norton Rose seminar on Islamic finance, Mark Hoban MP, Conservative shadow financial secretary to the treasury, confirmed that his party has supported the steps taken by the government to create a level playing field for Islamic finance and that it would continue the same approach. He recognized the concerns raised by the audience in respect of a need for clearer criteria to enable the industry to address any government concerns in relation to a UK government sukuk.
Should the Conservatives win, then Hoban is most likely to become the financial secretary to the treasury and lead the new government's Islamic finance initiative.
This cross-party support (including by the Opposition Liberal Democrat Party) for UK government's Islamic finance initiative has been welcomed by the industry. Farmida Bi, London banking partner at Norton Rose, emphasized, "It is extremely good news for the City of London that there is cross party support for the promotion of Islamic finance and that the helpful legislative changes that have been made will be continued irrespective of which party is in power."
One interesting area is that of a UK sovereign sukuk issuance, which the Labour government ruled out in December 2008 because such an issuance would not "offer value-for-money" at the time because of market conditions. Market players have queried this rationale and would like any future UK government to explain the criteria that need to be fulfilled in order for a sterling sukuk issuance to be viable.
The briefing adds that there has been considerable interest in the possibility of the UK government issuing a 2012 London Olympic sukuk since the decision not to proceed with the UK Treasury sukuk was taken. "Our discussion with market participants have shown that there is a huge amount of interest in the Islamic finance investor market for a UK government sukuk issue, for largely strategic reasons," confirmed Norton Rose.
Some City observers stress that a Conservative government under David Cameron may revise the Labour government decision on the issuing of a sovereign sukuk in the wholesale sterling market, because it would be an efficient and cost-effective way of raising funds off the national balance sheet to finance projects such Crossrail and other planned infrastructure developments.
source arab news