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British government about to issue Islamic bonds

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British government about to issue Islamic bonds

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Britain is to issue Islamic bonds in the next few weeks, the first time that has been done by a non-Muslim country.

It will raise 200 million pounds (250 million euros) with the bonds which are due to mature in five years.

Known as sukuk – the bonds comply with Islamic sharia religious rules forbidding the paying of interest.

It is part of efforts by the UK government to make London a hub of Islamic finance, rivaling centres in Asia and the Middle East.

The sukuk will use what is known as a ijara structure, a sharia-compliant sale and lease-back contract, allowing the rental income of three central government offices to underpin the transaction.

In an ijara sukuk, a party leases equipment, buildings or other facilities to a client for an agreed rental price – a popular format among both sovereign and corporate issuers.

Britain has six full-fledged Islamic banks and over 20 institutions in the country that offer sharia-compliant financial services.

A government backed sukuk could help the UK’s Islamic banks manage their short-term liquidity needs.

Luxembourg, Hong Kong and South Africa are all planning similar bonds to diversify their sources of funding.

with Reuters