Britain is to become the first Western country to issue Islamic bonds.
The announcement was made at the World Islamic Economic Forum, in London.
The bonds – known as sukuk – are investment certificates linked to assets or cash flow. They conform to Sharia law, which includes a ban on interest and gambling.
Prime Minister David Cameron said around 200 million pounds (233 million euros) worth of sukuk will be issued by the government 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. Changing that is a question of pragmatism and political will, and here in Britain, we have got both. This government wants Britain to become the first sovereign outside the Islamic world to issue an Islamic bond.”
The idea is to stimulate Islamic investment in Britain.
At the same time the London Stock Exchange announced plans to launch an Islamic index.
It would identify and track businesses which are filtered according to religious principles, rejecting those that are involved with things like alcohol or gambling.
Cameron said: “Today the London Stock Exchange group is announcing the creation of new indexes. It is, if you like, a world-leading Islamic Market Index. It is another global first for the City of London and yet another reason why London can be one of the great centres of Islamic finance anywhere in the world.”
A UK government issued investment-grade sukuk would help British based Islamic lenders expand. They would be able to hold them in order to meet Bank of England regulations on liquidity.
The global Islamic banking industry is expanding fast and is attracting interest among big Western banks because of the rapid growth of trade involving wealthy Gulf economies.