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Investing according to Islamic law

Marketplace Staff May 21, 2007
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KAI RYSSDAL: New York and London are caught up in a battle over which city will win out as the center of international finance. You could make a good argument either way, and it’ll probably be years, if not longer, before we ever know.

But London has an edge in a key growth market that New York and the United States might not be able to match. Britain could soon become the first Western government to issue bonds that comply with Islamic, or Shariah law. And that could mean billions in extra capital flowing London’s way, as our man in London, Stephen Beard, reports


STEPHEN BEARD: London’s link with the Muslim world is vividly apparent here on the Edgware Road.

Some people call this “Little Arabia.” There are dozens of Arab shops and cafes. Along the sidewalk, scores of people in traditional Arab dress smoke the water tobacco pipe the hookah. Because of the Arab and Pakistani presence in Britain, Islam is the U.K.’s second-largest religion.

At a recent conference, Britain’s Economic Secretary, Ed Balls, said he would like to cash in on the U.K.’s Muslim connection.

ED BALLS: We think this is a very important opportunity for our financial services industry. We are determined, in a concrete way, to do what’s necessary to make London the global hub for Islamic finance.

The British government has already changed the law to make it easier for Muslims to take out mortgages and other loans. But the latest plan is more dramatic. The idea: to issue British government Shariah bonds — vetted by Islamic scholars to ensure they don’t break any of the rules of Islam — which, for example, prohibit gambling and alcohol.

IQBAL KHAN: I believe this will further widen the appeal of London as a financial center to the emerging Islamic finance industry.

Iqbal Khan is a leading British Muslim banker. He says if the U.K. becomes the first Western state to issue Shariah-compliant government bonds, it could eventually bring to London huge sums of money from the oil-rich Middle East.

KHAN: The current size of the Islamic finance industry is more than $750 billion — that growing at 15 to 20 percent. So this is a very serious amount of capital coming through a financial center like London.

London has already attracted a small amount of trading in Islamic corporate bonds.

[SOUND: Islamic trading]

This is the dealing room of the European Islamic Investment Bank, which is based here in the British capital.

London seems a more likely venue for this kind of trading than New York, says David Oakley of The Financial Times. For one thing, he says, the U.S. government is wary of Muslim money.

DAVID OAKLEY: An unnamed person in the U.S. government, allegedly I have to say, was said to refer: “Islamic finance . . . is that terrorist finance?”

The U.K., says Oakley, is generally far more relaxed about Islamic finance than the U.S.

OAKLEY: There is this hostility towards Islamic finance in America dating back to Sept. 11. There is just not that same kind of hostility in this country.

Not in the government, perhaps, nor in London’s financial district. But there is some hostility in some quarters.

Charlotte Thorneycroft belongs to a group called the Lawyers Christian Fellowship

.

CHARLOTTE THORNEYCROFT: Really what you’re doing here is you’re putting two separate legal systems alongside each other. And Shariah law can’t sit alongside our secular democracy law at the same time.

She says that a panel of Shariah or Islamic lawyers — not even based in Britain — would make decisions about British public spending. They decide how the money raised by the bonds could be spent.

THORNEYCROFT: You could in theory say, “You can’t use this money for secular, democracy teaching because it goes against Shariah law. You can’t use this money for animal rights for certain animals because they are not halal. You can’t use the money for media because it propagates gossip.”

But devout Muslims here say that Shariah-compliant government bonds would help them feel more British — and more Muslim. For London’s banks and brokerage houses, however, the attractions are more basic. They have their eye on the ever-expanding tide of Muslim money flowing from the oil fields of the Middle East.

In London, this is Stephen Beard for Marketplace.

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