McCarthy-Fry, who is the minister responsible for leading Islamic finance policy at the UK Treasury, was giving the keynote address at the inaugural session of the 2009 London Sukuk Summit held on July 2-3. "In these difficult times for international financial markets," she added, "new opportunities for growth and development become increasingly important. The Islamic finance market presents huge long-term opportunities for London and for the UK. Islamic finance is an opportunity that we want to see realized for the benefit of Britain as a whole -- strengthening London's position -- not just as one of the world's leading financial centers -- but as the world center."

Perhaps equally important is the reassurance from the exchequer secretary that the decision not to issue a sovereign Sukuk by the UK Treasury at this time, "in no way reflects a diminished government commitment to Islamic finance in the UK. I hope that other progress, including the measures announced in the recent Finance Bill (2009), will pave the way for the Islamic finance industry to grow, and that corporate Sukuk products will thrive as alternative source of funding for UK and overseas firms."

Provisions for various reliefs involved in Sukuk issuances are included in the 2009 Finance Act which is expected to be adopted by the House of Commons next week and should get Royal Assent on July 21. The measures in detail comprise:

• Relief from stamp duty land tax where transactions are undertaken as part of the issue of Alternative Finance Investment Bonds (AFIBs) -- the name for Sukuk in the UK legislation.

• Relief from tax on capital gains in respect of these types of transactions and

• Clarification of how the capital allowances regime will interact with these changes.

Bankers in the UK and those from abroad attending the summit were encouraged by the minister's remarks and by the fact that the UK Treasury will soon publish details of a consultation on the measures to facilitate corporate Sukuk issuances out of the UK.

In fact, the market may be witnessing a race, albeit a slow one, to launch the first benchmark Sukuk in the European market. While the UK clearly has the lead through its enabling legislation in the last three finance acts regarding tax and capital gains reliefs and the current corporate Sukuk consultation, other EU countries such as France and Luxembourg have publicly announced that they too are interested in raising funds in the wholesale Euro market through a debut benchmark Sukuk issuance.

France recently similarly introduced tax and other neutrality measures to facilitate Islamic finance products in France including Sukuk and Murabaha. Luxembourg, says Marc Theisen, Senior Partner of Theisen Schiltz, a leading local law firm involved in Islamic finance, is also keen to issue a Sukuk, and any outstanding legislation needed could be introduced fairly quickly.

Luxembourg is host to almost 40 registered Islamic funds and about 15 Sukuk listings on the Luxembourg Stock Exchange. As such, it is very familiar with the tax and other requirements relating to Islamic financial products.

The Islamic finance market in fact is keenly awaiting the issuance of a benchmark Eurosukuk, which bankers stress could be the single biggest boost to the Islamic capital markets this side of 2010.

However, according to McCarthy-Fry, London has made much progress in the Islamic wholesale banking space in the last few years. The recent $750 million government of Bahrain sovereign Sukuk is now listed on the London Stock Exchange, bringing the number of Sukuk listed on the said exchange to 19 with an estimated total value of around $11 billion, a figure exceeded only by the Sukuk listings on the Nasdaq in Dubai.

The UK government has also taken significant steps to support the future issuance of corporate Sukuk in the UK.

The Treasury at the same time believes that future progress in the Islamic finance space in the UK must be led by the industry, but it recognizes that more needs to be done to create a level-playing field for Islamic finance in relation to equivalent conventional finance products.

"Our door remains open to consider other ways in which we can support the Islamic finance industry.. In Britain we have community and commitment; skills and scale; expertise and connections around the world," declared the exchequer secretary.

"We want the future of Islamic finance in the UK to be a collaborative effort from all involved. With the expertise and dedication in this industry, I am very optimistic that, working together, we can ensure Islamic finance and trade are major elements in London's success in the decades ahead."

By Mushtak Parker

© Arab News 2009

 

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