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Monday, 18 February 2008

Bonds to fit sharia law backed by Chancellor

The row over sharia law was reignited on Sunday with the emergence of plans for the Chancellor to approve "Islamic bonds" which would raise money for public spending from the Middle East.
Britain would be the first Western nation to issue the bonds, which meet Islamic rules by avoiding interest payments, classed as "sinful".
The move could lead to wealthy Middle Eastern businessmen and banks taking ownership of Government buildings and other British assets.

The Treasury said last April that it was interested in exploring the possibility of borrowing funds through bonds compliant with Islamic law, known as sukuk.
A consultation exercise on the issue, launched in November, ends on Thursday.
MPs are expected to be updated on progress in the Budget next month.
But treasury officials have reportedly been working on the proposal for months. The Chancellor, Alistair Darling, is said to be ready to approve the proposal.
A Treasury spokesman said: "We want the City of London to be one of the gateways globally for Islamic financial products and we want it to be competitive on all products you can imagine, so we should be competitive on Islamic finance as well as any other."
Critics have hit out at the move saying it would undermine Britain's financial systems.
The senior Conservative MP Edward Leigh, chairman of the Commons public accounts committee, said: "I am concerned about the signal this would send - it could be the thin end of the wedge.
"British common law must be supreme and should apply to everyone."
A spokesman for the National Secular Society said: "Constructing financial instruments to be sharia-compliant seems to involve unnecessary complication, which will only make a lot of lawyers rich."
The bonds have been designed to comply with the demands of sharia, and sukuk is estimated to be worth £5.5 billion in a £125 billion global market.
Unlike a conventional bond which is debt-based, a sukuk is asset-based. Instead of receiving interest, bond holders receive "rent" on the asset, complying with sharia.
It is believed that Government assets such as "buildings or a piece of infrastructure" would be switched to a "special-purpose vehicle" set up to administer the bond. This would be carried out by a contract known as an ijara.
The asset would then be leased back by the Government, generating rental payments for the Islamic bond holders.
When the sukuk matured, the Government would guarantee to buy back the asset, allowing the bond-holders to get redemption payments.
The proposal follows a row over comments by the Archbishop of Canterbury, Dr Rowan Williams, who said it "seemed inevitable" that aspects of sharia law, such as divorce proceedings, would be adopted in Britain.

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