LONDON – Prime Minister David Cameron is taking strides to tap the burgeoning interest in Islamic finance, announcing the launch of a new Islamic Market Index in London and plans for Britain to be the first non-Muslim country to issue an Islamic bond.
Describing London as “already the biggest centre for Islamic finance outside the Islamic world,” Cameron said Tuesday that the U.K.’s ambition is to go further.
“I don’t just want London to be a great capital of Islamic finance in the Western world,” he told an audience of international political and business leaders in London. “I want London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the World.”
Islamic finance conforms to Islamic law, or Shariah, which forbids charging interest and requires deals to be based on tangible assets. Speculation is banned, as is dealing in futures. Although still small compared with the world of mainstream finance, Islamic finance is expected to hold growing appeal for Gulf investors seeking to invest oil revenue or pious Muslims who want retail Islamic banking services.
The market in Islamic investments has grown quickly since 2006, and its value is expected to hit 1.3 trillion pounds ($2 trillion) next year. Malaysia’s capital, Kuala Lumpur, is regarded as its hub, but London has been courting the industry aggressively.
Cameron made a case for mutual benefits in his address Tuesday at the World Islamic Economic Forum, which for the first time is being held in a non-Muslim country.
Afghan President Hamid Karzai and Prime Minister Nawaz Sharif were among the nearly 1,800 political and business leaders attending the meeting. King Abdullah II of Jordan told delegates that Muslims worldwide needed to join economic blocs, follow open market trends and engage their country’s youth. Frustrated unemployed youth were a major driver of the revolutions that rocked the Arab world in 2011 and beyond.
“The business world must make it a priority to answer the needs of young people everywhere, for jobs, good jobs, secure futures and the opportunity to excel,” he said.
The London index — which would track the ups-and-downs of Shariah-compliant investments — is being launched on the London Stock Exchange. Cameron also said plans are underway to make Britain the first country outside of the Muslim world to issue an Islamic bond. It is expected to be worth around 200 million pounds and issued next year.
“For years people have been talking about creating an Islamic bond — or sukuk — outside the Islamic world. But it’s never quite happened,” Cameron said. “Changing that is a question of pragmatism and political will. And here in Britain we’ve got both.”
Alex Conroy, a trader at Spreadex, said that the U.K.’s effort to diversify business could be seen as a way to stay competitive in the finance world as Britain faces the prospect of caps on bankers’ bonuses.
“By welcoming all foreign investment this should ensure London remains a leader in global finance,” he said in a note.
Jamal Halaby in Amman, Jordan, contributed to this report.
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