Sharia bonds may help to fill the public purse

By Megan Levy and agencies

Last Updated: 1:54pm GMT 17/02/2008

The Government is preparing to announce whether it will press ahead with plans to use “sharia bonds” to raise money for public spending programmes, it has emerged.

  Dr Rowan Williams
Dr Rowan Williams said elements of sharia law were “unavoidable” in Britain

Ministers see the bonds, known as sukuk, as a way of tapping Middle East money and building bridges with Islam.

But the plan will be deeply debated following the storm raised by the Archbishop of Canterbury’s comments that elements of sharia law were now “unavoidable” in Britain.

The Treasury confirmed that a feasibility study had looked at whether the bonds would be practical, and MPs can expect to be updated on progress in the Budget next month.

Islamic law forbids making money from interest, making conventional loans unacceptable to the devout.

But the specially-designed sukuk bonds have been designed to comply with the demands of Sharia, and are thought to be worth £5.5 billion in a £125 billion global Islamic financial market.

The bonds work on the principle of investing in a fixed asset able to generate a rate of return, such as property that yields rent or an asset that can repay a larger capital sum on redemption. These avoid paying interest.

A Treasury spokesman today said: “We want the City of London to be one of the gateways globally for Islamic financial products and we want it to be competitive on all products you can imagine, so we should be competitive on Islamic finance as well as any other.”


But Edward Leigh, the chairman of the House of Commons Public Accounts Committee, raised concern over the plans.

“I am concerned about the signal this would send – it could be the thin end of the wedge. British Common Law must be supreme and should apply to everyone,” he told the Mail on Sunday.

A spokesman for the National Secular Society told the paper: “Constructing financial instruments to be sharia-compliant seems to me to involve a lot of unnecessary complication, which will serve only to make a lot of lawyers very rich.”

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