15 November 2014
When Paul Goodman, the editor of Conservative Home, received an email marketing a particular Islamic financial product he asked me if I wanted to write something about it.
I concluded that it would be inappropriate to write about any particular investment product, as that would risk creating the presumption that I was recommending it. However looking at the product reminded me that countries gain or lose economic competitiveness not by one or two major decisions, but by the steady drip feed of political decisions that either enhance or weaken their competitiveness.
While Islamic finance is only a small part of the financial scene in the UK, the way that the UK government has facilitated its grown illustrates the above point very well. Accordingly I wrote a piece for Conservative Home which was published on 28 October 2014. It is reproduced below.
Mohammed Amin is Chairman of the Conservative Muslim Forum. He is also an Islamic finance consultant and before retirement was UK Head of Islamic Finance at PricewaterhouseCoopers LLP. He is writing in a personal capacity.
Throughout this government, both David Cameron and George Osborne have been consistent about the need for the UK to be a winner in “the global race.”
I applaud them for their focus, even though each time I hear the phrase “global race” I cringe. The economic purist inside me cries out that countries do not compete – only companies and individuals compete. However the government of each country can make a big difference regarding whether that country’s companies and individuals are fit to compete, or not.
Competitiveness is rarely lost by a single dramatic mistake. Instead, it slowly dies from thousands of small injuries such as:
Similarly, success in increasing competitiveness is often achieved by having a large number of “micro-policies” affecting particular parts of the economy. For example, what the UK is doing to make NHS patient data more easily accessible for medical research will not only improve our citizens’ health; it will also make the UK a more attractive location for pharmaceutical research.
One particularly successful UK micro-policy is our country’s approach to Islamic finance.
Although it may be hard for Conservatives to believe that Gordon Brown and Ed Balls could ever do anything right, they do deserve credit for promoting Islamic finance and changes to UK tax law to facilitate it. Sadly, their efforts eventually ran out of steam in 2008, due to the combined effects of the global financial crisis and excessively frequent changes in the ministerial responsibility for the subject.
Our Government has picked up the baton extremely well. In particular, almost exactly one year ago, David Cameron opened the World Islamic Economic Forum in London, the first time that it has been held outside a Muslim majority country, and announced that the UK would issue a sovereign sukuk. This promise was kept in June 2014 when the UK issued £200 million of sukuk. The issue (click here for the prospectus) was ten times oversubscribed and priced at the same yield as five-year conventional gilts, demonstrating that investors would purchase UK government sukuk at a cost no greater to the UK government than conventional debt.
Even though it took the UK seven years between first announcing that it was thinking of issuing a sukuk and doing so, we were still the first non-Muslim majority country to do so. Consequently, the news story reverberated around the world, with immensely positive public relations value for the UK financial services industry.
The way that the UK has gradually changed its tax law and clarified its regulatory practices to facilitate Islamic finance has brought jobs to the UK. For example, we now have six Islamic banks here, and many significant real estate transactions have been financed using Islamic finance. There have always been real estate investment funds set up under Islamic finance principles investing in the UK but we are now seeing more of them with I suspect lower minimum investment limits than before, albeit still only aimed at “sophisticated investors”.
Looking forward, I would expect the UK to continue acting as a focal point for International Islamic finance activity, with many deals for overseas companies and assets being led from the UK due to our strength in investment banking, international legal services and international accounting services.
During the global financial crisis we heard much talk of “re-balancing the economy”. I was always very sceptical, since finance is something that the UK does particularly well, and when you do something well you should do more of it rather than less. The good news is that employment in London’s financial services has now passed its previous peak.
Promoting Islamic finance as the government has done is clearly in the best interests of the economy and therefore of all British citizens and taxpayers. However, it is also good politics, since it should increase the Conservative party’s appeal to Muslim voters.