Financial Secretary on Islamic finance and Help to Buy
A speech by the Financial Secretary on Islamic finance and the new Help to Buy scheme rules.
Thanks Mushtak.
I’m very glad to be here this morning…
And to be able to speak about an issue that is – in fact – very personal to me.
53 years ago, my father – a young man called Abdul-Ghani…
Left the Punjab – Pakistan – to find work here in the UK…
First as a cotton mill worker…
Then as a bus driver…
Before – eventually – setting up his own business.
And what my father’s career taught me…
Was that the UK is a country where foreign workers or businessmen or businesses can come…
And if they work hard…
And if they invest their time and their energy…
And – if they have it – their money…
They can both contribute to – and benefit from – a strong economy.
But before I became an MP…
I did something different to my father…
Which was to spend twenty years…
First for Chase Manhattan…
Then for Deutsche Bank…
Travelling out of the UK…
And working in emerging markets.
And what my career taught me…
Was that in a global business environment…
If the UK wants to remain the centre of the financial world…
It needs to keep exploring – and engaging with – fast growing economies.
And that’s what I want to talk to you about today.
First, I want to talk about why the UK – and this city in particular….
Is the centre of the financial world.
Second, I want to talk about why we view Islamic finance as such a key market in this City’s future…
And finally, I want to talk about the steps the UK Government is taking to ensure that this country can become a hub for your sector.
Success of UK as a financial centre
So why – or how? – has the UK established itself as such a good location for Islamic finance?
This isn’t something you can decide to do overnight.
London has always been – for a number of reasons…
Some of them historic…
Some of them geographic…
A global city.
And as modern Islamic finance started to develop and grow…
Our city has grown with it.
By leveraging our existing assets;
Like our common law legal framework…
Our advantageous time zone…
Our deep pool of structured finance expertise…
We’ve turned this country into a place very well equipped to deal with what you do.
We’ve created one of the most advanced regulatory and tax environments in the world to provide a level playing field for Islamic finance.
All the major banks in the UK provide Islamic finance products and services in one form or another…
We have 6 fully Islamic banks.
And we’ve also got all the support networks in place that any major market player needs…
Like legal or accounting or consulting firms.
And the expertise they provide…
Coupled with the benefits of our common law framework…
Mean that the majority of cross-border Islamic financial contracts reference the law of England and Wales.
In fact, almost every international Islamic contract will touch London – or a London-based firm – in some way.
So we’ve already established ourselves as a location where the Islamic finance sector knows there are networks that understand its needs…
Understand its customs…
And understand the laws that govern it.
Growing Market
But simply because we have that network in place now…
Doesn’t mean we can be complacent…
And believe we’ll remain the best place for your sector.
Because – as you’ll all no doubt be hearing over the course of the conference – Islamic finance is undergoing huge and exciting changes…
The Islamic finance sector is growing faster than traditional banking.
Islamic investments are set to grow to £1.3 trillion over this year.
And 10 of the top 25 growth markets in the world have large Muslim populations, with rapidly expanding Islamic financial sectors.
Of course, if you want proof of the importance and the relevance of Islamic wealth…
You only have to look at the skyline of this city.
In the east, where the cranes of DP World are building one of Europe’s biggest ports.
In the south, where the Shard – Europe’s tallest building – was funded by Qatari investment.
In the West, where Battersea Power Station is being refurbished – thanks to £400m of Investment from Malaysia.
And – of course – in the North, where Arsenal – one of the top teams in the world’s most watched football league – play their home games in the Emirates Stadium.
And all that investment in all those projects unlocks jobs, and it creates growth in the city.
Those projects and those buildings also serve as a clear, physical reminder that Islamic finance is becoming an even more important part of global finance.
And here in the UK we want to make sure we can keep engaging with it.
And keep working with it.
So we’re taking constant action to keep up with it.
Action taken so far
Many of you will be aware of the action we’ve taken already.
Many of you – in fact – will have been at the World Islamic Economic Forum here in London last year….
And I’m sure those of you that were, will agree it was a real success.
It was the first time the Forum had been held outside the Islamic world.
And it saw attendance by nearly 3 000 delegates from over 120 countries.
There were 46 Ministers…
And 16 Heads of State or Government, including the UK Prime Minister.
It was at that Forum, that David Cameron made a number of announcements, including:
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Our intention to issue a sovereign sukuk…
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And our commitment to opening up new forms of student loans for Islamic students…
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And new forms of start-up loans for Islamic entrepreneurs
The conference also saw the announcement by the London Stock Exchange of a new Islamic index…
Which uses some of the most advanced techniques on the planet to screen financial ratios, and enable investors to identify opportunities with lower volatility.
In short: it means that this city will be the best place to identify Islamic finance opportunities…
And the best place to give investors the tools they need – in accordance with Islamic principles – to take advantage of them.
Last year also saw the formation of a UK Islamic Task Force…
The launch of London’s first Shariah-compliant Underwriting Agency…
And the launch of a UK Government insurance action plan…
Which commits us to developing London’s expertise – and to grow London’s market – in commercial Islamic insurance.
Things we are going to do
Of course, all of those actions represent a strong start…
But launching new policies or new taskforces or new services is one thing.
The real proof our commitment will come in making sure that those policies and those taskforces and those services help London to reach its full potential as the world centre of Islamic finance…
And – in turn – for global Islamic markets to reach their full potential.
So I’d like to spend my last couple of minutes updating you on where we’ve got to with some of that work.
First, our announcement on the sovereign sukuk.
The market has long made the case for a sukuk issued by the UK Government.
And many of you will know that this is something the UK Government has looked at the possibility of doing before.
Now, due to a hurdle or two, it has never quite happened…
But through pragmatism – and through political will – I’m very pleased to say that we’re now in a much better place to overcome those issues…
And I expect issuance to take place in the forthcoming financial year.
Following an open competition, at the end of last month…
We appointed HSBC and Linklaters as external advisors to assist us in this work.
I have to say, the strength of the competition for those roles was remarkable…
And serves as testament to just how far the industry has developed and just how much expertise now exists both here in London and abroad.
We anticipate that issuance will take place by way of syndicated offering…
And that closer to the time of the transaction we’ll be seeking to include additional syndicate members to help us bring it to market.
I’m confident that this Sukuk issuance will deliver significant benefits both for the UK and for the Islamic finance industry:
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First – it should prove that the concept works, and demonstrate that the UK has established both a legal and regulatory framework that puts Islamic finance on a level playing field with conventional finance.
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Second – having a top credit issuer like the UK issue Sukuk should move Islamic finance into the mainstream, and encourage its acceptance as an asset class by those who may not have considered it previously.
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And third – It will demonstrate – quite clearly – that the UK is a country that is open for business, and whose Government welcomes trade with all parts of the globe.
This is – I think – the most exciting development in this area for a long time, and I’m really looking forward to working hard and seeing it through.
Another exciting development has been the work we’ve taken forward– on Islamic student and start-up loans.
Last year’s announcement on this was – for me – incredibly important.
Fellow British Muslims shouldn’t feel unable to go to university because they can’t get a Student loan – simply because of their religion…
Nor should they feel unable to start a business because they can’t get a start-up loan – simply because of their religious practices
Of course, I also believe – and this Government agrees – that a Muslim in Britain shouldn’t feel unable to buy a home because they can’t get a mortgage…
So I’m glad to be able to announce that – from today – the rules for the Government’s Help to Buy scheme have been amended…
So that providers of Home Purchase Plans – which are a Sharia compliant alternative to a mortgage – can benefit from the scheme too.
That action – on student loans, on business loans, on home loans – shows that we are embedding Islamic friendly processes into our everyday financial systems.
The final area I’d like to update you on is the work of our Global Islamic Finance and Investment Group.
This group was – again – announced at the WIEF last year.
It’s chaired by my colleague and friend Baroness Warsi…
Its members include Ministers, Central Bank Governors and Islamic bank CEOs.
And its purpose is to increase our engagement in this area internationally
Work is already well underway by Baroness Warsi to identify some of the greatest global experts and practitioners in this field – both from industry and from Government…
And her vision is for a group that bring together key public and private sector expertise…
Who can consolidate existing work…
And develop a set of high level recommendations for the future.
These might be about building things…
Building trade links…
Investing in the building of new infrastructure…
Or they might be about knocking barriers down…
Barriers like lack of skills…
Or shortages of long-term investment products.
So let me tell you this.
We are in this for the long-haul.
And I hope the announcements we made last year…
And the progress we’re making on those announcements…
Show very clearly, just how important this is to the UK Government.
We’re under no illusion that there are many challenges – both domestic and international – still to be tackled.
We have to increase awareness…
We have to build up depth.
We have to build up liquidity and tenor in capital markets.
But we want to be at the centre of the work which helps Islamic finance reach its international potential…
And we’re the perfect place to do that.
First, Islamic finance is a faith based form of finance, originating in countries with majority Muslim populations…
But the UK is showing how it can develop in a country with a Muslim minority, and within a secular legal framework.
Second, London is the world’s financial centre, providing the core hub for the intermediation of capital across borders.
Every other major and minor financial centre is linked to the UK like no other…
So – working with our global partners, in Dubai, in Bahrain, in Malaysia, and beyond – we can integrate Islamic finance into global capital markets and create an Islamic finance market that never sleeps.
As I said at the outset, I know…
From my working experiences…
That the UK has to keep looking at emerging markets, and future global trends…
If we want to maintain our place in the world.
And I know from my father’s working experiences…
That this is a country which welcomes and rewards those people…
That want to contribute to – and benefit from – its economic growth.
We want you to play a part in our growth.
Just as we want to play a part in your growth.
And I’m sure that by working together, we can achieve both those aims.
Thanks for listening.