Brown’s halal budget: London to overtake Dubai
22 March 2007
Sam JonesLondon could become the world’s next centre for Islamic financing, experts predict.
Changes to the UK tax regime in chancellor Gordon Brown’s budget, announced yesterday, will make the City even more attractive for Islamic financiers.
While the Chancellor’s budget received a lukewarm reception from most of the capital’s businesses – Ipsos Mori reported this morning that 46% of small and medium companies were unimpressed – the square mile’s shariah marketplace was more optimistic.
The budget promised changes which would allow Islamic financial derivatives to be issued, held and traded within the UK on the same basis as conventional securities.
Draft legislation promised sukuk issuers the ability to offset coupon payments on securities against company profits for corporation tax purposes.
HM Revenue & Customs published a review yesterday on how it would treat Islamic financial products such as diminishing musharaka in regard to capital gains and capital allowance taxes.
Rules have also been altered to allow for the development of Islamic insurance products, or takaful.
“London has the capacity to become a hub for shariah complaint financial flows,” said Anouar Hassoune at Standard & Poor’s. “We estimate that up to 300,000 retail customers in the UK would be ready customers for shariah-compliant banking services.
“Although Dubai has been the most active trading centre for sukuk notes so far, this amendment to the tax law in the UK will make London more attractive for issuing and trading sukuk.”
London has already seen some huge Islamic bonds. Only last month, UAE property giant Aldar issued a huge $2.53 billion sukuk on the LSE.
The global sukuk market was valued at $70 billion in 2006, and even the most conservative estimates are predicting a 40% increase in market size over the next five years.
The city of London already has more banks supplying services under Islamic principles than any other Western financial centre. It is also home to the world’s first, and only, secondary market for Islamic bonds.
Islamic financial instruments still remain largely unused outside of the Islamic world; they are banned in the US.