New Sukuk era dawns on UK

19 June 2007 - The United Kingdom is set to herald new Sukuk era by this year-end and the US will follow suit by mid-2008.

This was disclosed by Prof Mahmood Faruqui, Vice-Chairman, Institute of Islamic Banking and Insurance, United Kingdom, speaking at the special session of the International Islamic Financial Market 2007 conference on ‘Islamic Primary and Secondary market’ here yesterday. In the March 2007 Budget, the UK Government announced that it is was “introducing a new regime for Sukuk (Islamic securitisations) giving comparable tax treatment to conventional securitisations; and giving clarity through guidance on the treatment of diminishing Musharaka (partnership share) and Takaful (insurance) products to help widen the investment opportunities available to all and support substantial market innovation in Britain.”

UK Chancellor Gordon Brown’s Budget 2007 statement on the introduction of comparable tax treatment for Sukuk (Islamic trust securities) and clear guidelines on the treatment of Diminishing Musharaka (for Islamic mortgages) and Takaful (Islamic insurance) was widely welcomed by regulators and bankers in Islamic countries. He announced that Sukuk would be brought within the “alternative finance” regime introduced to cater to other Islamic finance methods such as Murabaha, Ijara and diminishing Musharaka products.

Against this backdrop, Prof. Faruqui said a standardised Sukuk issuance approach becomes all the more relevant, more so with the Islamic banking module’s increased global presence and acceptance. “The sector is getting more funds from non Islamic countries and conventional banks too are participating in a big way all over.’

The UK initiative could spawn an all-new Euro-Sukuk market allowing for diversification of investment to investors. It also allows issuers better access to capital, be it dollar or euro, to meet specific requirements of investors.

According to reports, the Japanese Bank for International Cooperation also was embarking on a proactive Sukuk issuance strategy, which includes both issuance by the bank and through credit enhancement by JBIC through its guarantee, where Japanese private companies and their affiliates overseas issue Sukuk.

Reference:: Innovation must to ensure sustainable growth in Islamic primary markets

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