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Government to launch Islamic bonds

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23/04/2007

Islamic bonds which comply with Sharia Law may be available in the UK within this financial year.  

In an attempt to promote London as the global centre of Islamic finance, the Treasury has announced that it is to lay the groundwork for the introduction of bonds which do not pay dividend interest to holders. 

Sharia Law debars the earning of interest, and financial products must be structured differently as a result.

Quite how the new structure will work is as yet unclear, but City Minister Ed Balls claims to be confident that the detail can be worked out simply. 

Sharia-compliant bonds have been issued by the governments of Pakistan and Malaysia, but never before by a Western government. 

The Treasury’s plan is to introduce both bonds for the wholesale market, plus bonds that Muslims in the UK can use to invest in National Savings products.

A Treasury spokesperson said: “We hope Muslim leaders will be impressed that we are now moving towards doing the technical work on this bond issue so quickly.” 

Issuing Sharia-compliant bonds (sukuk), which make regular payments to investors that is not interest-based, will require costly legal and religious advice, which will make them more expensive than regular bonds.

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